If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at MARR (BIT:MARR), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
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 MARR, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.022 = €15m ÷ (€1.1b - €373m) (Based on the trailing twelve months to March 2021).
So, MARR has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 9.3%.
Check out our latest analysis for MARR
Above you can see how the current ROCE for MARR compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for MARR.
What Can We Tell From MARR's ROCE Trend?
When we looked at the ROCE trend at MARR, we didn't gain much confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 2.2%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
The Bottom Line
From the above analysis, we find it rather worrisome that returns on capital and sales for MARR have fallen, meanwhile the business is employing more capital than it was five years ago. Despite the concerning underlying trends, the stock has actually gained 26% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.
On a separate note, we've found 1 warning sign for MARR you'll probably want to know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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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About BIT:MARR
MARR
Engages in marketing and distribution of fresh, dried, and frozen food products for catering in Italy, the European Union, and internationally.
Very undervalued with flawless balance sheet and pays a dividend.
