If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Endeavour Group is:

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).

Thus, 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.

View 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Endeavour Group .

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

The trends we've noticed at Endeavour Group are quite reassuring. Over the last four years, returns on capital employed have risen substantially to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital 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

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Endeavour Group has. And since the stock has fallen 28% over the last three years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we've found 2 warning signs for Endeavour Group that we think you should be aware of.

While Endeavour Group 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.