Returns At M.T.I Wireless Edge (LON:MWE) Are On The Way Up

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So on that note, M.T.I Wireless Edge (LON:MWE) looks quite promising in regards to its trends of return on capital.

Understanding 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 M.T.I Wireless Edge is:

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

0.15 = US$4.6m ÷ (US$40m - US$10m) (Based on the trailing twelve months to September 2023).

Thus, M.T.I Wireless Edge has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Communications industry.

Check out our latest analysis for M.T.I Wireless Edge

In the above chart we have measured M.T.I Wireless Edge'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 M.T.I Wireless Edge .

So How Is M.T.I Wireless Edge's ROCE 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 amount of capital employed has increased too, by 41%. So we're very much inspired by what we're seeing at M.T.I Wireless Edge thanks to its ability to profitably reinvest capital.

The Key Takeaway

In summary, it's great to see that M.T.I Wireless Edge can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 126% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

M.T.I Wireless Edge does have some risks though, and we've spotted 2 warning signs for M.T.I Wireless Edge that you might be interested in.

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.

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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.