Returns On Capital - An Important Metric For Masterplast Nyrt (BUSE:MASTERPLAST)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Speaking of which, we noticed some great changes in Masterplast Nyrt's (BUSE:MASTERPLAST) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. 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 = €7.0m ÷ (€103m - €39m) (Based on the trailing twelve months to September 2020).

So, Masterplast Nyrt has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Building industry.

Check out 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Masterplast Nyrt Tell Us?

We like the trends that we're seeing from Masterplast Nyrt. Over the last five years, returns on capital employed have risen substantially to 11%. 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 107%. So we're very much inspired by what we're seeing at Masterplast Nyrt thanks to its ability to profitably reinvest capital.

One more thing to note, Masterplast Nyrt has decreased current liabilities to 38% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

To sum it up, Masterplast Nyrt has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 418% 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 Masterplast Nyrt can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for Masterplast Nyrt (1 is concerning) you should be aware of.

While Masterplast Nyrt 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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