Investors Will Want Martifer SGPS' (ELI:MAR) Growth In ROCE To Persist

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Martifer SGPS (ELI:MAR) looks quite promising in regards to its trends of return on capital.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Martifer SGPS is:

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

0.085 = €13m ÷ (€270m - €113m) (Based on the trailing twelve months to December 2020).

So, Martifer SGPS has an ROCE of 8.5%. On its own, that's a low figure but it's around the 9.8% average generated by the Construction industry.

View our latest analysis for Martifer SGPS

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'd like to look at how Martifer SGPS has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Martifer SGPS has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 3,319% over the trailing five years. The company is now earning €0.08 per dollar of capital employed. In regards to capital employed, Martifer SGPS appears to been achieving more with less, since the business is using 52% less capital to run its operation. Martifer SGPS may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Another thing to note, Martifer SGPS has a high ratio of current liabilities to total assets of 42%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Martifer SGPS' ROCE

From what we've seen above, Martifer SGPS has managed to increase it's returns on capital all the while reducing it's capital base. 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 Martifer SGPS can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Martifer SGPS we've found 5 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Martifer SGPS may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.
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