Multiexport Foods (SNSE:MULTI X) Shareholders Will Want The ROCE Trajectory To Continue

By
Simply Wall St
Published
November 25, 2021
SNSE:MULTI X
Source: Shutterstock

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Multiexport Foods (SNSE:MULTI X) so let's look a bit deeper.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Multiexport Foods, this is the formula:

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

0.10 = US$55m ÷ (US$733m - US$208m) (Based on the trailing twelve months to September 2021).

So, Multiexport Foods has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Food industry average of 9.3%.

See our latest analysis for Multiexport Foods

roce
SNSE:MULTI X Return on Capital Employed November 26th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Multiexport Foods' ROCE against it's prior returns. If you'd like to look at how Multiexport Foods has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The fact that Multiexport Foods is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 10% which is a sight for sore eyes. Not only that, but the company is utilizing 45% 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.

What We Can Learn From Multiexport Foods' ROCE

Long story short, we're delighted to see that Multiexport Foods' 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 85% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing: We've identified 3 warning signs with Multiexport Foods (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

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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