M.T.I Wireless Edge's (LON:MWE) 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? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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 M.T.I Wireless Edge (LON:MWE) 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. The formula for this calculation on M.T.I Wireless Edge is:

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

0.15 = US$4.1m ÷ (US$36m - US$9.5m) (Based on the trailing twelve months to December 2020).

Thus, M.T.I Wireless Edge has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 9.2% it's much better.

See our latest analysis for M.T.I Wireless Edge

Above you can see how the current ROCE for M.T.I Wireless Edge compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering M.T.I Wireless Edge here for free.

How Are Returns Trending?

Investors would be pleased with what's happening at M.T.I Wireless Edge. Over the last five years, returns on capital employed have risen substantially to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 24%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On M.T.I Wireless Edge's ROCE

To sum it up, M.T.I Wireless Edge has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 340% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if M.T.I Wireless Edge can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 4 warning signs with M.T.I Wireless Edge and understanding these should be part of your investment process.

While M.T.I Wireless Edge may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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