MRC Global (NYSE:MRC) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at MRC Global (NYSE:MRC) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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 MRC Global is:

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

0.027 = US$34m ÷ (US$1.8b - US$525m) (Based on the trailing twelve months to March 2022).

Therefore, MRC Global has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 14%.

Check out our latest analysis for MRC Global

Above you can see how the current ROCE for MRC Global compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering MRC Global here for free.

What The Trend Of ROCE Can Tell Us

It's great to see that MRC Global has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 2.7% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 27%. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

The Bottom Line On MRC Global's ROCE

In a nutshell, we're pleased to see that MRC Global has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 33% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

While MRC Global may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.