Here's What To Make Of Maps' (BIT:MAPS) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. In light of that, when we looked at Maps (BIT:MAPS) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Maps, this is the formula:

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

0.046 = €998k ÷ (€29m - €7.3m) (Based on the trailing twelve months to June 2020).

Thus, Maps has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Software industry average of 11%.

Check out our latest analysis for Maps

Above you can see how the current ROCE for Maps 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 Maps.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Maps, we didn't gain much confidence. Over the last three years, returns on capital have decreased to 4.6% from 25% three years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Maps' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Maps is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 26% in the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Maps does have some risks, we noticed 4 warning signs (and 1 which can't be ignored) we think you should know about.

While Maps 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. 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.
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