Slowing Rates Of Return At Martinrea International (TSE:MRE) Leave Little Room For Excitement

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Martinrea International's (TSE:MRE) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Martinrea International:

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

0.11 = CA$301m ÷ (CA$4.1b - CA$1.3b) (Based on the trailing twelve months to June 2024).

So, Martinrea International has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Auto Components industry.

View our latest analysis for Martinrea International

Above you can see how the current ROCE for Martinrea International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Martinrea International for free.

What Can We Tell From Martinrea International's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 24% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Martinrea International's ROCE

In the end, Martinrea International has proven its ability to adequately reinvest capital at good rates of return. Yet over the last five years the stock has declined 10%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you'd like to know about the risks facing Martinrea International, we've discovered 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.