Investors Shouldn't Overlook Magnitogorsk Iron & Steel Works' (MCX:MAGN) Impressive Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Magnitogorsk Iron & Steel Works' (MCX:MAGN) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Magnitogorsk Iron & Steel Works is:

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

0.37 = US$2.5b ÷ (US$8.6b - US$1.7b) (Based on the trailing twelve months to June 2021).

Therefore, Magnitogorsk Iron & Steel Works has an ROCE of 37%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

View our latest analysis for Magnitogorsk Iron & Steel Works

In the above chart we have measured Magnitogorsk Iron & Steel Works' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Magnitogorsk Iron & Steel Works.

The Trend Of ROCE

Magnitogorsk Iron & Steel Works is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 37%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 34%. So we're very much inspired by what we're seeing at Magnitogorsk Iron & Steel Works thanks to its ability to profitably reinvest capital.

What We Can Learn From Magnitogorsk Iron & Steel Works' ROCE

To sum it up, Magnitogorsk Iron & Steel Works has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 305% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 3 warning signs for Magnitogorsk Iron & Steel Works (1 makes us a bit uncomfortable) you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.
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