Some Investors May Be Worried About MONY Group's (LON:MONY) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Looking at MONY Group (LON:MONY), it does have a high ROCE right now, but lets see how returns are trending.

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 MONY Group:

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

0.39 = UK£102m ÷ (UK£413m - UK£149m) (Based on the trailing twelve months to June 2024).

So, MONY Group has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Interactive Media and Services industry average of 25%.

Check out our latest analysis for MONY Group

In the above chart we have measured MONY Group'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 MONY Group .

So How Is MONY Group's ROCE Trending?

When we looked at the ROCE trend at MONY Group, we didn't gain much confidence. While it's comforting that the ROCE is high, five years ago it was 56%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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 Key Takeaway

Bringing it all together, while we're somewhat encouraged by MONY Group's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 29% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think MONY Group has the makings of a multi-bagger.

MONY Group could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for MONY on our platform quite valuable.

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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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.