Why The 47% Return On Capital At MFO (WSE:MFO) Should Have Your Attention

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in MFO's (WSE:MFO) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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 MFO is:

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

0.47 = zł158m ÷ (zł546m - zł209m) (Based on the trailing twelve months to September 2021).

Therefore, MFO has an ROCE of 47%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 20%.

Check out our latest analysis for MFO

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

How Are Returns Trending?

MFO is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 47%. The amount of capital employed has increased too, by 258%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On MFO'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 MFO has. Since the stock has only returned 10% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

If you'd like to know more about MFO, we've spotted 4 warning signs, and 1 of them can't be ignored.

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.