Some Investors May Be Worried About MaltaPost's (MTSE:MTP) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at MaltaPost (MTSE:MTP) and its ROCE trend, we weren't exactly thrilled.

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 MaltaPost, this is the formula:

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

0.068 = €2.2m ÷ (€52m - €19m) (Based on the trailing twelve months to September 2021).

Thus, MaltaPost has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Logistics industry average of 15%.

See our latest analysis for MaltaPost

Historical performance is a great place to start when researching a stock so above you can see the gauge for MaltaPost's ROCE against it's prior returns. If you'd like to look at how MaltaPost has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From MaltaPost's ROCE Trend?

In terms of MaltaPost's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 12% over the last five years. 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 MaltaPost's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that MaltaPost 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 41% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you'd like to know more about MaltaPost, we've spotted 3 warning signs, and 2 of them are concerning.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.