The Returns On Capital At MGI Digital Technology Société Anonyme (EPA:ALMDG) Don't Inspire Confidence

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at MGI Digital Technology Société Anonyme (EPA:ALMDG), it didn't seem to tick all of these boxes.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. Analysts use this formula to calculate it for MGI Digital Technology Société Anonyme:

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

0.056 = €7.8m ÷ (€151m - €10.0m) (Based on the trailing twelve months to June 2024).

So, MGI Digital Technology Société Anonyme has an ROCE of 5.6%. Even though it's in line with the industry average of 6.2%, it's still a low return by itself.

View our latest analysis for MGI Digital Technology Société Anonyme

In the above chart we have measured MGI Digital Technology Société Anonyme's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for MGI Digital Technology Société Anonyme .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at MGI Digital Technology Société Anonyme, we didn't gain much confidence. To be more specific, ROCE has fallen from 18% over the last five years. However it looks like MGI Digital Technology Société Anonyme might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

In summary, MGI Digital Technology Société Anonyme is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 68% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think MGI Digital Technology Société Anonyme has the makings of a multi-bagger.

If you'd like to know about the risks facing MGI Digital Technology Société Anonyme, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.