Stock Analysis

Under The Bonnet, Mader Group's (ASX:MAD) Returns Look Impressive

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ASX:MAD
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Mader Group's ( ASX:MAD ) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Mader Group:

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

0.39 = AU$26m ÷ (AU$107m - AU$40m) (Based on the trailing twelve months to December 2020) .

Thus, Mader Group has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 9.0%.

Check out our latest analysis for Mader Group

roce
ASX:MAD Return on Capital Employed April 18th 2021

Above you can see how the current ROCE for Mader Group 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 report on analyst forecasts for the company .

The Bottom Line On Mader Group's ROCE

Overall, Mader Group gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a solid 52% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Mader Group can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Mader Group that you might find interesting.

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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