Returns On Capital Are Showing Encouraging Signs At Matica Fintec (BIT:MFT)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Matica Fintec's (BIT:MFT) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Matica Fintec:

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

0.055 = €937k ÷ (€21m - €3.7m) (Based on the trailing twelve months to June 2021).

Thus, Matica Fintec has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Tech industry average of 9.4%.

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 Can We Tell From Matica Fintec's ROCE Trend?

We're delighted to see that Matica Fintec is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses three years ago, but now it's earning 5.5% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Matica Fintec is utilizing 133% more capital than it was three years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, Matica Fintec has decreased current liabilities to 18% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Matica Fintec's ROCE

Long story short, we're delighted to see that Matica Fintec's reinvestment activities have paid off and the company is now profitable. And with a respectable 53% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 3 warning signs with Matica Fintec and understanding these should be part of your investment process.

While Matica Fintec 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.

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.

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