Mandarin Oriental International (SGX:M04) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Speaking of which, we noticed some great changes in Mandarin Oriental International's (SGX:M04) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Mandarin Oriental International is:

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

0.027 = US$85m ÷ (US$3.5b - US$322m) (Based on the trailing twelve months to December 2024).

Therefore, Mandarin Oriental International has an ROCE of 2.7%. Even though it's in line with the industry average of 3.3%, it's still a low return by itself.

View our latest analysis for Mandarin Oriental International

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mandarin Oriental International's ROCE against it's prior returns. If you'd like to look at how Mandarin Oriental International has performed in the past in other metrics, you can view this free graph of Mandarin Oriental International's past earnings, revenue and cash flow.

The Trend Of ROCE

It's nice to see that ROCE is headed in the right direction, even if it is still relatively low. The figures show that over the last five years, returns on capital have grown by 83%. The company is now earning US$0.03 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 35% less capital than it was five years ago. Mandarin Oriental International may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take On Mandarin Oriental International's ROCE

From what we've seen above, Mandarin Oriental International has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has only returned 37% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

While Mandarin Oriental International looks impressive, no company is worth an infinite price. The intrinsic value infographic for M04 helps visualize whether it is currently trading for a fair price.

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. 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.