Mainfreight (NZSE:MFT) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Mainfreight (NZSE:MFT) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Mainfreight:

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

0.19 = NZ$363m ÷ (NZ$2.6b - NZ$691m) (Based on the trailing twelve months to September 2021).

So, Mainfreight has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Logistics industry average of 11% it's much better.

Check out our latest analysis for Mainfreight

In the above chart we have measured Mainfreight's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Mainfreight's ROCE Trending?

Mainfreight is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 102%. So we're very much inspired by what we're seeing at Mainfreight thanks to its ability to profitably reinvest capital.

What We Can Learn From Mainfreight's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Mainfreight has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Mainfreight can keep these trends up, it could have a bright future ahead.

While Mainfreight looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MFT is currently trading for a fair price.

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.