There are a few key trends to look for if we want to identify the next 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Monarch Casino & Resort (NASDAQ:MCRI) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Monarch Casino & Resort:

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

0.22 = US$121m ÷ (US$665m - US$106m) (Based on the trailing twelve months to June 2023).

Therefore, Monarch Casino & Resort has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 9.6% earned by companies in a similar industry.

Check out our latest analysis for Monarch Casino & Resort

Above you can see how the current ROCE for Monarch Casino & Resort compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Monarch Casino & Resort.

How Are Returns Trending?

The trends we've noticed at Monarch Casino & Resort are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 76%. So we're very much inspired by what we're seeing at Monarch Casino & Resort thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Monarch Casino & Resort has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 48% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Monarch Casino & Resort, we've discovered 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.