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

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, MFE-Mediaforeurope (BIT:MFEB) looks quite promising in regards to its trends of return on capital.

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Understanding 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. Analysts use this formula to calculate it for MFE-Mediaforeurope:

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

0.16 = €335m ÷ (€3.6b - €1.5b) (Based on the trailing twelve months to September 2024).

So, MFE-Mediaforeurope has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 12% generated by the Media industry.

View 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 analyst report for MFE-Mediaforeurope .

What Does the ROCE Trend For MFE-Mediaforeurope Tell Us?

MFE-Mediaforeurope's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 26% whilst employing roughly the same amount of capital. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a side note, MFE-Mediaforeurope's current liabilities are still rather high at 42% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line 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. And a remarkable 343% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if MFE-Mediaforeurope can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing MFE-Mediaforeurope, we've discovered 1 warning sign that you should be aware of.

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.