Miquel y Costas & Miquel's (BME:MCM) Returns On Capital Are Heading Higher

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So when we looked at Miquel y Costas & Miquel (BME:MCM) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Miquel y Costas & Miquel:

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

0.19 = €69m ÷ (€454m - €84m) (Based on the trailing twelve months to December 2021).

Thus, Miquel y Costas & Miquel has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 11% generated by the Forestry industry.

View our latest analysis for Miquel y Costas & Miquel

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 Miquel y Costas & Miquel, check out these free graphs here.

So How Is Miquel y Costas & Miquel's ROCE Trending?

Investors would be pleased with what's happening at Miquel y Costas & Miquel. The data shows that returns on capital have increased substantially over the last five years to 19%. The amount of capital employed has increased too, by 22%. So we're very much inspired by what we're seeing at Miquel y Costas & Miquel thanks to its ability to profitably reinvest capital.

Our Take On Miquel y Costas & Miquel's ROCE

In summary, it's great to see that Miquel y Costas & Miquel can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Astute investors may have an opportunity here because the stock has declined 10% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know about the risks facing Miquel y Costas & Miquel, we've discovered 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.