There's Been No Shortage Of Growth Recently For Marlborough Wine Estates Group's (NZSE:MWE) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Marlborough Wine Estates Group (NZSE:MWE) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Marlborough Wine Estates Group is:

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

0.0079 = NZ$321k ÷ (NZ$43m - NZ$2.1m) (Based on the trailing twelve months to December 2023).

So, Marlborough Wine Estates Group has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 11%.

See our latest analysis for Marlborough Wine Estates Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Marlborough Wine Estates Group's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Marlborough Wine Estates Group.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Marlborough Wine Estates Group is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 0.8% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Marlborough Wine Estates Group is utilizing 195% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 5.0%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Marlborough Wine Estates Group's ROCE

Long story short, we're delighted to see that Marlborough Wine Estates Group's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 52% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

On a separate note, we've found 1 warning sign for Marlborough Wine Estates Group you'll probably want to know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com