MAV Beauty Brands (TSE:MAV) Will Be Hoping To Turn Its Returns On Capital Around

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. In light of that, from a first glance at MAV Beauty Brands (TSE:MAV), we've spotted some signs that it could be struggling, so let's investigate.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on MAV Beauty Brands is:

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

0.043 = US$7.4m ÷ (US$188m - US$18m) (Based on the trailing twelve months to September 2022).

Thus, MAV Beauty Brands has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Personal Products industry average of 13%.

Check out our latest analysis for MAV Beauty Brands

In the above chart we have measured MAV Beauty Brands' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is MAV Beauty Brands' ROCE Trending?

There is reason to be cautious about MAV Beauty Brands, given the returns are trending downwards. About five years ago, returns on capital were 7.0%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on MAV Beauty Brands becoming one if things continue as they have.

The Bottom Line On MAV Beauty Brands' ROCE

In summary, it's unfortunate that MAV Beauty Brands is generating lower returns from the same amount of capital. Unsurprisingly then, the stock has dived 83% over the last three years, so investors are recognizing these changes and don't like the company's prospects. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing: We've identified 3 warning signs with MAV Beauty Brands (at least 1 which can't be ignored) , and understanding these would certainly be useful.

While MAV Beauty Brands 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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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.