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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at OneSpaWorld Holdings (NASDAQ:OSW) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for OneSpaWorld Holdings, this is the formula:

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

0.12 = US$76m ÷ (US$734m - US$79m) (Based on the trailing twelve months to September 2024).

Thus, OneSpaWorld Holdings has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Consumer Services industry.

See our latest analysis for OneSpaWorld Holdings

In the above chart we have measured OneSpaWorld Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for OneSpaWorld Holdings .

What Does the ROCE Trend For OneSpaWorld Holdings Tell Us?

OneSpaWorld Holdings has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 462%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 26% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

What We Can Learn From OneSpaWorld Holdings' ROCE

In summary, it's great to see that OneSpaWorld Holdings has been able to turn things around and earn higher returns on lower amounts of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 47% return over the last five years. In light of that, we think it's worth looking further into this stock because if OneSpaWorld Holdings can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for OneSpaWorld Holdings that we think you should be aware of.

While OneSpaWorld Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.