The Trend Of High Returns At Mensch und Maschine Software (ETR:MUM) Has Us Very Interested

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 Mensch und Maschine Software's (ETR:MUM) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for Mensch und Maschine Software, this is the formula:

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

0.29 = €31m ÷ (€151m - €46m) (Based on the trailing twelve months to September 2020).

Therefore, Mensch und Maschine Software has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Software industry average of 13%.

View our latest analysis for Mensch und Maschine Software

In the above chart we have measured Mensch und Maschine Software's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Mensch und Maschine Software's ROCE Trending?

Mensch und Maschine Software is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 29%. The amount of capital employed has increased too, by 39%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Mensch und Maschine Software's ROCE

All in all, it's terrific to see that Mensch und Maschine Software is reaping the rewards from prior investments and is growing its capital base. And a remarkable 568% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

If you want to know some of the risks facing Mensch und Maschine Software we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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