The Return Trends At MPP Jedinstvo a.d (BELEX:JESV) Look Promising

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, MPP Jedinstvo a.d (BELEX:JESV) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for MPP Jedinstvo a.d:

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

0.084 = дин238m ÷ (дин7.9b - дин5.0b) (Based on the trailing twelve months to June 2023).

Thus, MPP Jedinstvo a.d has an ROCE of 8.4%. In absolute terms, that's a low return but it's around the Construction industry average of 10%.

Check out our latest analysis for MPP Jedinstvo a.d

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 MPP Jedinstvo a.d has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For MPP Jedinstvo a.d Tell Us?

MPP Jedinstvo a.d has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 281% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 48% less capital than it was five years ago. MPP Jedinstvo a.d may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 64% of the business, which is more than it was five years ago. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Key Takeaway

In a nutshell, we're pleased to see that MPP Jedinstvo a.d has been able to generate higher returns from less capital. Since the stock has returned a solid 45% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

MPP Jedinstvo a.d does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While MPP Jedinstvo a.d 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.