MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság's (BUSE:MEGAKRAN) Returns On Capital Not Reflecting Well On The Business

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság (BUSE:MEGAKRAN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság is:

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

0.029 = Ft112m ÷ (Ft5.1b - Ft1.2b) (Based on the trailing twelve months to December 2023).

Thus, MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 13%.

Check out our latest analysis for MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság's past further, check out this free graph covering MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság, we didn't gain much confidence. To be more specific, ROCE has fallen from 7.3% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság's ROCE

While returns have fallen for MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These trends are starting to be recognized by investors since the stock has delivered a 23% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While MEGAKRÁN Kereskedelmi és Szolgáltató Nyilvánosan Muködo Részvénytársaság 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. 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.