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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after briefly looking over the numbers, we don't think Cinemark Holdings (NYSE:CNK) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Cinemark Holdings:

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

0.077 = US$292m ÷ (US$4.9b - US$1.2b) (Based on the trailing twelve months to September 2024).

Therefore, Cinemark Holdings has an ROCE of 7.7%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 10%.

See our latest analysis for Cinemark Holdings

In the above chart we have measured Cinemark Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Cinemark Holdings for free.

So How Is Cinemark Holdings' ROCE Trending?

We're a bit concerned with the trends, because the business is applying 26% less capital than it was five years ago and returns on that capital have stayed flat. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 23% of total assets, this reported ROCE would probably be less than7.7% because total capital employed would be higher.The 7.7% ROCE could be even lower if current liabilities weren't 23% of total assets, because the the formula would show a larger base of total capital employed. So while current liabilities isn't high right now, keep an eye out in case it increases further, because this can introduce some elements of risk.

In Conclusion...

In summary, Cinemark Holdings isn't reinvesting funds back into the business and returns aren't growing. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know more about Cinemark Holdings, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.