The Returns On Capital At Monnari Trade (WSE:MON) Don't Inspire Confidence

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Monnari Trade (WSE:MON), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Monnari Trade, this is the formula:

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

0.0082 = zł2.4m ÷ (zł332m - zł39m) (Based on the trailing twelve months to September 2023).

Thus, Monnari Trade has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 14%.

Check out our latest analysis for Monnari Trade

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

What Can We Tell From Monnari Trade's ROCE Trend?

When we looked at the ROCE trend at Monnari Trade, we didn't gain much confidence. Around five years ago the returns on capital were 9.6%, but since then they've fallen to 0.8%. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Monnari Trade's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Monnari Trade. In light of this, the stock has only gained 23% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

On a final note, we've found 3 warning signs for Monnari Trade that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.