Matica Fintec's (BIT:MFT) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 when we looked at Matica Fintec (BIT:MFT) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Matica Fintec, this is the formula:

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

0.011 = €171k ÷ (€21m - €5.2m) (Based on the trailing twelve months to December 2020).

So, Matica Fintec has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 8.2%.

View our latest analysis for Matica Fintec

Above you can see how the current ROCE for Matica Fintec compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Matica Fintec has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses three years ago, but now it's earning 1.1% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Matica Fintec is utilizing 83% more capital than it was three years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 25%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Matica Fintec has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Matica Fintec's ROCE

Overall, Matica Fintec gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And given the stock has remained rather flat over the last year, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One final note, you should learn about the 3 warning signs we've spotted with Matica Fintec (including 1 which is a bit unpleasant) .

While Matica Fintec 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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