Returns On Capital Are A Standout For Mensch und Maschine Software (ETR:MUM)

By
Simply Wall St
Published
December 30, 2021
XTRA:MUM
Source: Shutterstock

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Mensch und Maschine Software (ETR:MUM) looks great, so lets see what the trend can tell us.

Understanding 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. Analysts use this formula to calculate it for Mensch und Maschine Software:

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

0.28 = €31m ÷ (€161m - €49m) (Based on the trailing twelve months to June 2021).

Thus, Mensch und Maschine Software has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

See our latest analysis for Mensch und Maschine Software

roce
XTRA:MUM Return on Capital Employed December 30th 2021

Above you can see how the current ROCE for Mensch und Maschine Software compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Mensch und Maschine Software here for free.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Mensch und Maschine Software are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 28%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 60%. So we're very much inspired by what we're seeing at Mensch und Maschine Software thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Mensch und Maschine Software has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Mensch und Maschine Software can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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