Mimi's Rock (CVE:MIMI) Is Doing The Right Things To Multiply Its Share Price

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Mimi's Rock's (CVE:MIMI) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Mimi's Rock:

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

0.14 = CA$3.3m ÷ (CA$45m - CA$21m) (Based on the trailing twelve months to March 2021).

Thus, Mimi's Rock has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 12% generated by the Personal Products industry.

See our latest analysis for Mimi's Rock

In the above chart we have measured Mimi's Rock's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Mimi's Rock here for free.

The Trend Of ROCE

We're pretty happy with how the ROCE has been trending at Mimi's Rock. The figures show that over the last two years, returns on capital have grown by 64%. The company is now earning CA$0.1 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 28% less capital than it was two years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 47% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

What We Can Learn From Mimi's Rock's ROCE

In summary, it's great to see that Mimi's Rock has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has fallen 16% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to know some of the risks facing Mimi's Rock we've found 3 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While Mimi's Rock isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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