Why The 24% Return On Capital At Magis (BIT:MGS) Should Have Your Attention

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Magis' (BIT:MGS) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

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 Magis is:

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

0.24 = €12m ÷ (€74m - €23m) (Based on the trailing twelve months to June 2024).

Thus, Magis has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 14%.

See our latest analysis for Magis

Above you can see how the current ROCE for Magis compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Magis for free.

The Trend Of ROCE

We like the trends that we're seeing from Magis. The data shows that returns on capital have increased substantially over the last three years to 24%. Basically the business is earning more per dollar of capital invested and in addition to that, 57% more capital is being employed now too. So we're very much inspired by what we're seeing at Magis thanks to its ability to profitably reinvest capital.

What We Can Learn From Magis' ROCE

To sum it up, Magis has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 21% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing, we've spotted 2 warning signs facing Magis that you might find interesting.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.