MFE-Mediaforeurope (BIT:MFEB) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, we've noticed some promising trends at MFE-Mediaforeurope (BIT:MFEB) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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 MFE-Mediaforeurope, this is the formula:

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

0.091 = €357m ÷ (€5.4b - €1.4b) (Based on the trailing twelve months to June 2022).

So, MFE-Mediaforeurope has an ROCE of 9.1%. Even though it's in line with the industry average of 8.8%, it's still a low return by itself.

See our latest analysis for MFE-Mediaforeurope

Above you can see how the current ROCE for MFE-Mediaforeurope 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 MFE-Mediaforeurope.

The Trend Of ROCE

MFE-Mediaforeurope is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 1,910% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

One more thing to note, MFE-Mediaforeurope has decreased current liabilities to 27% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that MFE-Mediaforeurope has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On MFE-Mediaforeurope's ROCE

To bring it all together, MFE-Mediaforeurope has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 25% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing: We've identified 4 warning signs with MFE-Mediaforeurope (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.

While MFE-Mediaforeurope 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.