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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Sinclair's (NASDAQ:SBGI) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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 Sinclair:

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

0.10 = US$550m ÷ (US$5.9b - US$605m) (Based on the trailing twelve months to December 2024).

Therefore, Sinclair has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 9.1% generated by the Media industry.

View our latest analysis for Sinclair

Above you can see how the current ROCE for Sinclair 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 analyst report for Sinclair .

What Does the ROCE Trend For Sinclair Tell Us?

You'd find it hard not to be impressed with the ROCE trend at Sinclair. We found that the returns on capital employed over the last five years have risen by 284%. The company is now earning US$0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 67% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

Our Take On Sinclair's ROCE

From what we've seen above, Sinclair has managed to increase it's returns on capital all the while reducing it's capital base. Considering the stock has delivered 35% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Sinclair does have some risks, we noticed 3 warning signs (and 2 which can't be ignored) we think you should know about.

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.