Returns At Quickstep Holdings (ASX:QHL) Are On The Way Up

Simply Wall St
Tue, 2 August 2022, 3:28 am
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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.
So when we looked at Quickstep Holdings (ASX:QHL) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It ?
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 Quickstep Holdings is:Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)0.11 = AU$5.7m ÷ (AU$74m - AU$22m) (Based on the trailing twelve months to December 2021).Thus, Quickstep Holdings has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.6% generated by the Aerospace & Defense industry.

What Can We Tell From Quickstep Holdings' ROCE Trend?
The fact that Quickstep Holdings is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 11% on its capital. Not only that, but the company is utilizing 133% more capital than before, but that's to be expected from a company trying to break into profitability.

We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.One more thing to note, Quickstep Holdings has decreased current liabilities to 30% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.
https://au.finance.yahoo.com/news/returns-quickstep-holdings-asx-qhl-202821429.html
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Go QHL ! houston ... we are all systems go and ready for countdown .... roger that QHL .. !