Stock Analysis

What Do The Returns At Mastermyne Group (ASX:MYE) Mean Going Forward?

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ASX:MYE
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Mastermyne Group (ASX:MYE) looks quite promising in regards to its trends of return on capital.

Understanding 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 Mastermyne Group:

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

0.20 = AU$17m ÷ (AU$138m - AU$51m) (Based on the trailing twelve months to June 2020).

Thus, Mastermyne Group has an ROCE of 20%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 9.5% it's much better.

Check out our latest analysis for Mastermyne Group

roce
ASX:MYE Return on Capital Employed December 7th 2020

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Mastermyne Group's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Mastermyne Group's ROCE Trending?

The fact that Mastermyne Group 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 20% on its capital. And unsurprisingly, like most companies trying to break into the black, Mastermyne Group is utilizing 22% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Mastermyne Group's ROCE

In summary, it's great to see that Mastermyne Group has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Mastermyne Group does have some risks though, and we've spotted 4 warning signs for Mastermyne Group that you might be interested in.

While Mastermyne Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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