Interregional Distribution Grid Company of Siberia (MCX:MRKS) Will Be Hoping To Turn Its Returns On Capital Around

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Interregional Distribution Grid Company of Siberia (MCX:MRKS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Interregional Distribution Grid Company of Siberia:

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

0.084 = ₽4.2b ÷ (₽74b - ₽24b) (Based on the trailing twelve months to December 2020).

Therefore, Interregional Distribution Grid Company of Siberia has an ROCE of 8.4%. In absolute terms, that's a low return but it's around the Electric Utilities industry average of 9.8%.

See our latest analysis for Interregional Distribution Grid Company of Siberia

Above you can see how the current ROCE for Interregional Distribution Grid Company of Siberia compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Interregional Distribution Grid Company of Siberia Tell Us?

On the surface, the trend of ROCE at Interregional Distribution Grid Company of Siberia doesn't inspire confidence. Over the last five years, returns on capital have decreased to 8.4% from 11% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, Interregional Distribution Grid Company of Siberia has decreased its current liabilities to 32% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On Interregional Distribution Grid Company of Siberia's ROCE

To conclude, we've found that Interregional Distribution Grid Company of Siberia is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 535% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to know some of the risks facing Interregional Distribution Grid Company of Siberia we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Interregional Distribution Grid Company of Siberia isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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