Slowing Rates Of Return At Mazda (NSE:MAZDA) Leave Little Room For Excitement

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Mazda's (NSE:MAZDA) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Mazda:

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

0.17 = ₹234m ÷ (₹1.7b - ₹334m) (Based on the trailing twelve months to December 2020).

Thus, Mazda has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 11% it's much better.

Check out our latest analysis for Mazda

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 want to delve into the historical earnings, revenue and cash flow of Mazda, check out these free graphs here.

So How Is Mazda's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 43% in that time. 17% is a pretty standard return, and it provides some comfort knowing that Mazda has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On Mazda's ROCE

To sum it up, Mazda has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 35% return if they held over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to continue researching Mazda, you might be interested to know about the 4 warning signs that our analysis has discovered.

While Mazda 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. 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.
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