Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount of capital employed. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in SeaWorld Entertainment’s (NYSE:SEAS) returns on capital, so let’s have a look.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for SeaWorld Entertainment:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.28 = US$526m ÷ (US$2.4b – US$461m) (Based on the trailing twelve months to March 2023).
Therefore, SeaWorld Entertainment has an ROCE of 28%. In absolute terms that’s a great return and it’s even better than the Hospitality industry average of 8.8%.
Check out our latest analysis for SeaWorld Entertainment
Above you can see how the current ROCE for SeaWorld Entertainment 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 SeaWorld Entertainment here for free.
What The Trend Of ROCE Can Tell Us
SeaWorld Entertainment’s ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 336% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it’s worth investigating what the management team has planned for long term growth prospects.
The Bottom Line
To bring it all together, SeaWorld Entertainment has done well to increase the returns it’s generating from its capital employed. And a remarkable 150% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it’s worth researching the company further to see if these trends are likely to persist.
On a separate note, we’ve found 2 warning signs for SeaWorld Entertainment you’ll probably want to know about.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.
