MFE-Mediaforeurope (BIT:MFEB) Is Looking To Continue Growing Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Speaking of which, we noticed some great changes in MFE-Mediaforeurope's (BIT:MFEB) returns on capital, so let's have a look.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.093 = €322m ÷ (€4.9b - €1.5b) (Based on the trailing twelve months to June 2024).

Thus, MFE-Mediaforeurope has an ROCE of 9.3%. In absolute terms, that's a low return but it's around the Media industry average of 11%.

Check out our latest analysis for MFE-Mediaforeurope

In the above chart we have measured MFE-Mediaforeurope's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in 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 33% 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From 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. Since the stock has returned a staggering 189% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 3 warning signs facing MFE-Mediaforeurope that you might find interesting.

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.