Yahoo Finance SkyCity Entertainment Group (NZSE:SKC) Hasn't Managed To Accelerate Its Returns
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at SkyCity Entertainment Group (NZSE:SKC), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for SkyCity Entertainment Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.071 = NZ$177m ÷ (NZ$2.8b - NZ$344m) (Based on the trailing twelve months to December 2023).
So, SkyCity Entertainment Group has an ROCE of 7.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.4%.
See our latest analysis for SkyCity Entertainment Group
Above you can see how the current ROCE for SkyCity Entertainment Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering SkyCity Entertainment Group for free.
The Trend Of ROCE
There hasn't been much to report for SkyCity Entertainment Group's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at SkyCity Entertainment Group in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. On top of that you'll notice that SkyCity Entertainment Group has been paying out a large portion (79%) of earnings in the form of dividends to shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.
What We Can Learn From SkyCity Entertainment Group's ROCE
We can conclude that in regards to SkyCity Entertainment Group's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 43% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
One final note, you should learn about the 3 warning signs we've spotted with SkyCity Entertainment Group (including 1 which is potentially serious) .
While SkyCity Entertainment Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
