Investors Will Want Masterplast Nyrt's (BUSE:MASTERPLAST) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. So on that note, Masterplast Nyrt (BUSE:MASTERPLAST) 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. To calculate this metric for Masterplast Nyrt, this is the formula:

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

0.11 = €18m ÷ (€223m - €61m) (Based on the trailing twelve months to June 2022).

So, Masterplast Nyrt has an ROCE of 11%. In isolation, that's a pretty standard return but against the Building industry average of 14%, it's not as good.

See our latest analysis for Masterplast Nyrt

Above you can see how the current ROCE for Masterplast Nyrt 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 Masterplast Nyrt.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Masterplast Nyrt are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 338% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 27%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Masterplast Nyrt has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Masterplast Nyrt's ROCE

In summary, it's great to see that Masterplast Nyrt 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. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 3 warning signs we've spotted with Masterplast Nyrt (including 2 which are a bit unpleasant) .

While Masterplast Nyrt 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.