Mewah International (SGX:MV4) Is Achieving High Returns On Its Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Mewah International (SGX:MV4) we really liked what we saw.

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. Analysts use this formula to calculate it for Mewah International:

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

0.21 = US$142m ÷ (US$1.3b - US$601m) (Based on the trailing twelve months to December 2020).

Therefore, Mewah International has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Food industry average of 12%.

Check out our latest analysis for Mewah International

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 Mewah International's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Mewah International Tell Us?

We like the trends that we're seeing from Mewah International. Over the last five years, returns on capital employed have risen substantially to 21%. 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 23%. So we're very much inspired by what we're seeing at Mewah International thanks to its ability to profitably reinvest capital.

Another thing to note, Mewah International has a high ratio of current liabilities to total assets of 47%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

All in all, it's terrific to see that Mewah International is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 92% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Mewah International can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Mewah International, we've discovered 1 warning sign that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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