Be Wary Of Maytronics (TLV:MTRN) And Its Returns On Capital

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Maytronics (TLV:MTRN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Maytronics, this is the formula:

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

0.049 = ₪58m ÷ (₪2.1b - ₪910m) (Based on the trailing twelve months to December 2024).

Thus, Maytronics has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 13%.

View our latest analysis for Maytronics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Maytronics' ROCE against it's prior returns. If you'd like to look at how Maytronics has performed in the past in other metrics, you can view this free graph of Maytronics' past earnings, revenue and cash flow.

So How Is Maytronics' ROCE Trending?

On the surface, the trend of ROCE at Maytronics doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.9% from 29% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Another thing to note, Maytronics has a high ratio of current liabilities to total assets of 44%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Maytronics' ROCE

In summary, we're somewhat concerned by Maytronics' diminishing returns on increasing amounts of capital. Unsurprisingly then, the stock has dived 83% over the last five years, so investors are recognizing these changes and don't like the company's prospects. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we've found 4 warning signs for Maytronics that we think you should be aware of.

While Maytronics 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.