Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at Mazarin (CVE:MAZ.H) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Mazarin is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.01 = CA$296k ÷ (CA$35m - CA$6.4m) (Based on the trailing twelve months to March 2023).
Therefore, Mazarin has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 3.6%.
View 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'd like to look at how Mazarin has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Mazarin Tell Us?
Mazarin has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.0% on its capital. Not only that, but the company is utilizing 24% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Bottom Line
Long story short, we're delighted to see that Mazarin's reinvestment activities have paid off and the company is now profitable. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 73% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you want to know some of the risks facing Mazarin we've found 5 warning signs (3 are significant!) that you should be aware of before investing here.
While Mazarin 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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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.
About TSXV:MAZ.H
Medium-low with excellent balance sheet.
