Some Investors May Be Worried About MasTec's (NYSE:MTZ) Returns On Capital

By
Simply Wall St
Published
April 20, 2022
NYSE:MTZ
Source: Shutterstock

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after investigating MasTec (NYSE:MTZ), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on MasTec is:

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

0.079 = US$423m ÷ (US$7.1b - US$1.8b) (Based on the trailing twelve months to December 2021).

Thus, MasTec has an ROCE of 7.9%. On its own, that's a low figure but it's around the 9.2% average generated by the Construction industry.

See our latest analysis for MasTec

roce
NYSE:MTZ Return on Capital Employed April 20th 2022

Above you can see how the current ROCE for MasTec compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

In terms of MasTec's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 12% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for MasTec. And the stock has followed suit returning a meaningful 82% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

One more thing, we've spotted 2 warning signs facing MasTec that you might find interesting.

While MasTec 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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