Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Universal Store Holdings (ASX:UNI) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Universal Store Holdings is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.30 = AU$48m ÷ (AU$204m - AU$44m) (Based on the trailing twelve months to June 2021).

So, Universal Store Holdings has an ROCE of 30%.  That's a fantastic return and not only that, it outpaces the average of 20% earned by companies in a similar industry.

Check out our latest analysis for Universal Store Holdings  roce

Above you can see how the current ROCE for Universal Store Holdings 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 Universal Store Holdings here  for free.

So How Is Universal Store Holdings' ROCE Trending?

Universal Store Holdings is showing promise given that its ROCE is trending up and to the right. The figures show that over the last one year, ROCE has grown 92% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.



In Conclusion...

To sum it up, Universal Store Holdings is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 24% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. 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.

If you want to continue researching Universal Store Holdings, you might be interested to know about the 3 warning signsthat our analysis has discovered.

Universal Store Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.