Returns Are Gaining Momentum At Manitowoc Company (NYSE:MTW)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Manitowoc Company's (NYSE:MTW) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for Manitowoc Company, this is the formula:

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

0.085 = US$94m ÷ (US$1.7b - US$585m) (Based on the trailing twelve months to June 2023).

Therefore, Manitowoc Company has an ROCE of 8.5%. Ultimately, that's a low return and it under-performs the Machinery industry average of 12%.

View our latest analysis for Manitowoc Company

In the above chart we have measured Manitowoc Company's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Manitowoc Company here for free.

What Does the ROCE Trend For Manitowoc Company Tell Us?

Manitowoc Company's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 88% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Manitowoc Company's ROCE

To bring it all together, Manitowoc Company has done well to increase the returns it's generating from its capital employed. Given the stock has declined 25% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

While Manitowoc Company looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MTW is currently trading for a fair price.

While Manitowoc Company isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.