The Returns At Caesars Entertainment (NASDAQ:CZR) Aren't Growing

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Caesars Entertainment (NASDAQ:CZR), we don't think it's current trends fit the mold of a multi-bagger.

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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. To calculate this metric for Caesars Entertainment, this is the formula:

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

0.075 = US$2.3b ÷ (US$33b - US$2.3b) (Based on the trailing twelve months to December 2024).

So, Caesars Entertainment has an ROCE of 7.5%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 10.0%.

See our latest analysis for Caesars Entertainment

In the above chart we have measured Caesars Entertainment's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Caesars Entertainment for free.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Caesars Entertainment in recent years. The company has employed 512% more capital in the last five years, and the returns on that capital have remained stable at 7.5%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

As we've seen above, Caesars Entertainment's returns on capital haven't increased but it is reinvesting in the business. And with the stock having returned a mere 34% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you're still interested in Caesars Entertainment it's worth checking out our FREE intrinsic value approximation for CZR to see if it's trading at an attractive price in other respects.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.