Here's What's Concerning About MRV Engenharia e Participações' (BVMF:MRVE3) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at MRV Engenharia e Participações (BVMF:MRVE3), it didn't seem to tick all of these boxes.

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. To calculate this metric for MRV Engenharia e Participações, this is the formula:

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

0.015 = R$292m ÷ (R$27b - R$7.2b) (Based on the trailing twelve months to June 2024).

So, MRV Engenharia e Participações has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 6.5%.

Check out our latest analysis for MRV Engenharia e Participações

Above you can see how the current ROCE for MRV Engenharia e Participações 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 analyst report for MRV Engenharia e Participações .

What Can We Tell From MRV Engenharia e Participações' ROCE Trend?

In terms of MRV Engenharia e Participações' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 7.9% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that MRV Engenharia e Participações is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 56% in the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Like most companies, MRV Engenharia e Participações does come with some risks, and we've found 1 warning sign that you should be aware of.

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.