If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. In light of that, when we looked at Keg Royalties Income Fund (TSE:KEG.UN) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. The formula for this calculation on Keg Royalties Income Fund is:

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

0.13 = CA$34m ÷ (CA$261m - CA$4.6m) (Based on the trailing twelve months to December 2023).

So, Keg Royalties Income Fund has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 11% generated by the Hospitality industry.

Check out our latest analysis for Keg Royalties Income Fund

Historical performance is a great place to start when researching a stock so above you can see the gauge for Keg Royalties Income Fund's ROCE against it's prior returns. If you'd like to look at how Keg Royalties Income Fund has performed in the past in other metrics, you can view this free graph of Keg Royalties Income Fund's past earnings, revenue and cash flow.

What Does the ROCE Trend For Keg Royalties Income Fund Tell Us?

There hasn't been much to report for Keg Royalties Income Fund's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Keg Royalties Income Fund to be a multi-bagger going forward.

The Bottom Line

We can conclude that in regards to Keg Royalties Income Fund's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 16% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.