What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at MTQ (SGX:M05) so let's look a bit deeper.
What is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for MTQ:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.068 = S$6.2m ÷ (S$105m - S$14m) (Based on the trailing twelve months to September 2020).
Therefore, MTQ has an ROCE of 6.8%. In absolute terms, that's a low return but it's around the Energy Services industry average of 6.4%.
Check out our latest analysis for MTQ
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 MTQ's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
You'd find it hard not to be impressed with the ROCE trend at MTQ. We found that the returns on capital employed over the last five years have risen by 2,491%. The company is now earning S$0.07 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 51% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
The Key Takeaway
From what we've seen above, MTQ has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 48% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
On a separate note, we've found 4 warning signs for MTQ you'll probably want to know about.
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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About SGX:M05
MTQ
Provides engineering solutions for oilfield equipment in Singapore, the Kingdom of Bahrain, Australia, United Arab Emirates, and the United Kingdom.
Flawless balance sheet low.
