Returns On Capital At Monnalisa (BIT:MNL) Have Hit The Brakes

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Monnalisa's (BIT:MNL) ROCE trend, we were pretty happy with what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Monnalisa is:

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

0.12 = €6.1m ÷ (€71m - €22m) (Based on the trailing twelve months to December 2022).

Therefore, Monnalisa has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 10% generated by the Luxury industry.

View our latest analysis for Monnalisa

Historical performance is a great place to start when researching a stock so above you can see the gauge for Monnalisa's ROCE against it's prior returns. If you're interested in investigating Monnalisa's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Monnalisa's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 39% more capital into its operations. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

The main thing to remember is that Monnalisa has proven its ability to continually reinvest at respectable rates of return. Despite these impressive fundamentals, the stock has collapsed 83% over the last five years, so there is likely other factors affecting the company's future prospects. In any case, we like the underlying trends and would look further into this stock.

One more thing: We've identified 3 warning signs with Monnalisa (at least 1 which is potentially serious) , and understanding them would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.