Investors Could Be Concerned With Mazarin's (CVE:MAZ.H) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Mazarin (CVE:MAZ.H) and its ROCE trend, we weren't exactly thrilled.

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 Mazarin:

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

0.041 = CA$1.4m ÷ (CA$39m - CA$5.4m) (Based on the trailing twelve months to March 2024).

Thus, Mazarin has an ROCE of 4.1%. On its own that's a low return, but compared to the average of -0.02% generated by the Metals and Mining industry, it's much better.

See our latest analysis for Mazarin

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mazarin's ROCE against it's prior returns. If you're interested in investigating Mazarin's past further, check out this free graph covering Mazarin's past earnings, revenue and cash flow.

So How Is Mazarin's ROCE Trending?

On the surface, the trend of ROCE at Mazarin doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.1% from 8.0% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Mazarin's ROCE

While returns have fallen for Mazarin in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 125% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we found 6 warning signs for Mazarin (4 can't be ignored) 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.

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