If you're looking for a multi-bagger, there's a few things to 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 Rave Restaurant Group's (NASDAQ:RAVE) returns on capital, so let's have a look.

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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 Rave Restaurant Group:

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

0.22 = US$3.2m ÷ (US$16m - US$1.4m) (Based on the trailing twelve months to December 2024).

Therefore, Rave Restaurant Group has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 9.8%.

See our latest analysis for Rave Restaurant Group

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

What Does the ROCE Trend For Rave Restaurant Group Tell Us?

Rave Restaurant Group is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 22%. The amount of capital employed has increased too, by 39%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Rave Restaurant Group's ROCE

All in all, it's terrific to see that Rave Restaurant Group is reaping the rewards from prior investments and is growing its capital base. And a remarkable 310% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Rave Restaurant Group does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.