Stock Analysis

Should We Be Excited About The Trends Of Returns At Mondi (LON:MNDI)?

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LSE:MNDI
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There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Mondi's (LON:MNDI) ROCE trend, we were pretty happy with 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. The formula for this calculation on Mondi is:

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

0.14 = €990m ÷ (€8.9b - €1.9b) (Based on the trailing twelve months to June 2020).

So, Mondi has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Forestry industry average of 5.7% it's much better.

View our latest analysis for Mondi

roce
LSE:MNDI Return on Capital Employed December 21st 2020

Above you can see how the current ROCE for Mondi compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Mondi.

So How Is Mondi's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 36% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Mondi has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

To sum it up, Mondi has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 57% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Mondi does come with some risks, and we've found 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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