Returns On Capital Are A Standout For MasterCraft Boat Holdings (NASDAQ:MCFT)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. With that in mind, the ROCE of MasterCraft Boat Holdings (NASDAQ:MCFT) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for MasterCraft Boat Holdings, this is the formula:

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

0.30 = US$52m ÷ (US$256m - US$81m) (Based on the trailing twelve months to April 2021).

Therefore, MasterCraft Boat Holdings has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 21% earned by companies in a similar industry.

Check out our latest analysis for MasterCraft Boat Holdings

In the above chart we have measured MasterCraft Boat Holdings' 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 MasterCraft Boat Holdings here for free.

How Are Returns Trending?

MasterCraft Boat Holdings is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 30%. Basically the business is earning more per dollar of capital invested and in addition to that, 145% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On MasterCraft Boat Holdings' ROCE

To sum it up, MasterCraft Boat Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 102% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, MasterCraft Boat Holdings does come with some risks, and we've found 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.
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