MRC Global (NYSE:MRC) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, MRC Global (NYSE:MRC) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on MRC Global is:

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

0.083 = US$109m ÷ (US$1.9b - US$612m) (Based on the trailing twelve months to September 2022).

Therefore, MRC Global has an ROCE of 8.3%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 17%.

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 to see what analysts are forecasting going forward, you should check out our free report for MRC Global.

What The Trend Of ROCE Can Tell Us

MRC Global has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 127%. The company is now earning US$0.08 per dollar of capital employed. In regards to capital employed, MRC Global appears to been achieving more with less, since the business is using 26% less capital to run its operation. MRC Global may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

What We Can Learn From 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. And since the stock has fallen 24% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching MRC Global, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.