Returns On Capital Are Showing Encouraging Signs At MFE-Mediaforeurope (BIT:MFEB)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, MFE-Mediaforeurope (BIT:MFEB) looks quite promising in regards to its trends of return on capital.

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. 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)

0.085 = €331m ÷ (€5.2b - €1.3b) (Based on the trailing twelve months to June 2023).

Therefore, MFE-Mediaforeurope has an ROCE of 8.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.3%.

Check out 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.

What Can We Tell From MFE-Mediaforeurope's ROCE Trend?

MFE-Mediaforeurope's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 71% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To sum it up, MFE-Mediaforeurope is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 82% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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.

On a separate note, we've found 2 warning signs for MFE-Mediaforeurope you'll probably want to know about.

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.