If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Endeavour Group's (ASX:EDV) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Endeavour Group:

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

0.11 = AU$1.1b ÷ (AU$12b - AU$2.0b) (Based on the trailing twelve months to June 2024).

So, Endeavour Group has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 13% generated by the Consumer Retailing industry.

See our latest analysis for Endeavour Group

In the above chart we have measured Endeavour Group's 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 Endeavour Group for free.

What Can We Tell From Endeavour Group's ROCE Trend?

The trends we've noticed at Endeavour Group are quite reassuring. The data shows that returns on capital have increased substantially over the last four years to 11%. The amount of capital employed has increased too, by 24%. So we're very much inspired by what we're seeing at Endeavour Group thanks to its ability to profitably reinvest capital.

What We Can Learn From Endeavour Group's ROCE

To sum it up, Endeavour Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 32% in the last three years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

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

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.