Returns On Capital Are A Standout For Mainfreight (NZSE:MFT)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So when we looked at the ROCE trend of Mainfreight (NZSE:MFT) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Mainfreight is:

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

0.27 = NZ$790m ÷ (NZ$3.8b - NZ$805m) (Based on the trailing twelve months to March 2024).

Thus, Mainfreight has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Logistics industry average of 11%.

See our latest analysis for Mainfreight

Above you can see how the current ROCE for Mainfreight compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Mainfreight .

The Trend Of ROCE

We like the trends that we're seeing from Mainfreight. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 27%. 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 170%. So we're very much inspired by what we're seeing at Mainfreight thanks to its ability to profitably reinvest capital.

Our Take On Mainfreight's ROCE

In summary, it's great to see that Mainfreight can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 89% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Mainfreight that you might find interesting.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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