Investors Met With Slowing Returns on Capital At Metalac a.d. Gornji Milanovac (BELEX:MTLC)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Although, when we looked at Metalac a.d. Gornji Milanovac (BELEX:MTLC), it didn't seem to tick all of these boxes.

Understanding 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 Metalac a.d. Gornji Milanovac:

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

0.061 = дин440m ÷ (дин9.5b - дин2.2b) (Based on the trailing twelve months to June 2020).

Thus, Metalac a.d. Gornji Milanovac has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 9.9%.

View our latest analysis for Metalac a.d. Gornji Milanovac

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're interested in investigating Metalac a.d. Gornji Milanovac's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Metalac a.d. Gornji Milanovac's ROCE Trend?

In terms of Metalac a.d. Gornji Milanovac's historical ROCE trend, it doesn't exactly demand attention. The company has employed 29% more capital in the last five years, and the returns on that capital have remained stable at 6.1%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

In conclusion, Metalac a.d. Gornji Milanovac has been investing more capital into the business, but returns on that capital haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 32% in the last five years. Therefore based on the analysis done in this article, we don't think Metalac a.d. Gornji Milanovac has the makings of a multi-bagger.

One more thing: We've identified 4 warning signs with Metalac a.d. Gornji Milanovac (at least 1 which is concerning) , and understanding these would certainly be useful.

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. 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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