Returns Are Gaining Momentum At MS INTERNATIONAL (LON:MSI)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at MS INTERNATIONAL (LON:MSI) so let's look a bit deeper.

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 MS INTERNATIONAL, this is the formula:

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

0.089 = UK£3.5m ÷ (UK£74m - UK£34m) (Based on the trailing twelve months to April 2022).

Thus, MS INTERNATIONAL has an ROCE of 8.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.3%.

View our latest analysis for MS INTERNATIONAL

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 MS INTERNATIONAL, check out these free graphs here.

The Trend Of ROCE

MS INTERNATIONAL is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 82% whilst employing roughly the same amount of capital. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

On a side note, MS INTERNATIONAL's current liabilities are still rather high at 46% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

To sum it up, MS INTERNATIONAL is collecting higher returns from the same amount of capital, and that's impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 87% return over the last five years. In light of that, we think it's worth looking further into this stock because if MS INTERNATIONAL can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing MS INTERNATIONAL we've found 3 warning signs (1 is potentially serious!) that you should be aware of before investing here.

While MS INTERNATIONAL isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.