Mazarin's (CVE:MAZ.H) Returns On Capital Not Reflecting Well On The Business

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Mazarin (CVE:MAZ.H) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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What Is 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 Mazarin:

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

0.042 = CA$1.5m ÷ (CA$41m - CA$4.9m) (Based on the trailing twelve months to September 2024).

So, Mazarin has an ROCE of 4.2%. Even though it's in line with the industry average of 3.9%, it's still a low return by itself.

Check out 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 Mazarin's past earnings, revenue and cash flow .

So How Is Mazarin's ROCE Trending?

In terms of Mazarin's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 8.4%, but since then they've fallen to 4.2%. 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. If these investments prove successful, this can bode very well for long term stock performance.

Our Take 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 followed suit returning a meaningful 82% to shareholders over the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

One final note, you should learn about the 5 warning signs we've spotted with Mazarin (including 3 which don't sit too well with us) .

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.