Mazarin's (CVE:MAZ.H) Returns On Capital Are Heading Higher

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Mazarin (CVE:MAZ.H) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Mazarin:

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

0.02 = CA$582k ÷ (CA$33m - CA$3.1m) (Based on the trailing twelve months to September 2021).

So, Mazarin has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 3.7%.

Check out our latest analysis for Mazarin

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Mazarin's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that Mazarin is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 2.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Mazarin is utilizing 443% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 9.7%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

To the delight of most shareholders, Mazarin has now broken into profitability. Since the stock has returned a staggering 400% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One final note, you should learn about the 5 warning signs we've spotted with Mazarin (including 4 which can't be ignored) .

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.