MFE-Mediaforeurope's (BIT:MFEB) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, MFE-Mediaforeurope (BIT:MFEB) looks quite promising in regards to its trends of return on capital.

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

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 MFE-Mediaforeurope, this is the formula:

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

0.12 = €272m ÷ (€3.6b - €1.4b) (Based on the trailing twelve months to September 2022).

Therefore, MFE-Mediaforeurope has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 9.0% it's much better.

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'd like to see what analysts are forecasting going forward, you should check out our free report for MFE-Mediaforeurope.

What The Trend Of ROCE Can Tell Us

MFE-Mediaforeurope is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 50%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 39%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On MFE-Mediaforeurope's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what MFE-Mediaforeurope has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 74% return over the last five years. 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.

While MFE-Mediaforeurope isn't earning the highest return, check out this free list of companies that are 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.