Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Acushnet Holdings (NYSE:GOLF) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Acushnet Holdings is:

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

0.16 = US$289m ÷ (US$2.3b - US$516m) (Based on the trailing twelve months to September 2024).

Thus, Acushnet Holdings has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Leisure industry.

Check out our latest analysis for Acushnet Holdings

Above you can see how the current ROCE for Acushnet Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Acushnet Holdings .

So How Is Acushnet Holdings' ROCE Trending?

Acushnet Holdings is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 24%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Acushnet Holdings' ROCE

To sum it up, Acushnet Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 126% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 2 warning signs for Acushnet Holdings you'll probably want to know about.

While Acushnet Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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