Returns Are Gaining Momentum At Mallouppas & Papacostas (CSE:MPT)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Mallouppas & Papacostas' (CSE:MPT) returns on capital, so let's have a look.

What is 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. To calculate this metric for Mallouppas & Papacostas, this is the formula:

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

0.043 = €1.6m ÷ (€51m - €14m) (Based on the trailing twelve months to June 2020).

Therefore, Mallouppas & Papacostas has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 9.0%.

View our latest analysis for Mallouppas & Papacostas

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 want to delve into the historical earnings, revenue and cash flow of Mallouppas & Papacostas, check out these free graphs here.

What Can We Tell From Mallouppas & Papacostas' ROCE Trend?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 38% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Mallouppas & Papacostas' ROCE

In summary, we're delighted to see that Mallouppas & Papacostas has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 16% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to know some of the risks facing Mallouppas & Papacostas we've found 3 warning signs (1 can't be ignored!) that you should be aware of before investing here.

While Mallouppas & Papacostas may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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