Mercor (WSE:MCR) Shareholders Will Want The ROCE Trajectory To Continue

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. 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. Speaking of which, we noticed some great changes in Mercor's (WSE:MCR) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Mercor:

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

0.17 = zł42m ÷ (zł331m - zł86m) (Based on the trailing twelve months to December 2020).

Thus, Mercor has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 14% generated by the Building industry.

View our latest analysis for Mercor

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Mercor, check out these free graphs here.

How Are Returns Trending?

The trends we've noticed at Mercor are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The amount of capital employed has increased too, by 55%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, Mercor has decreased current liabilities to 26% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Mercor has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Mercor's ROCE

All in all, it's terrific to see that Mercor is reaping the rewards from prior investments and is growing its capital base. And a remarkable 126% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Mercor does come with some risks, and we've found 2 warning signs that you should be aware of.

While Mercor isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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