What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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, when we ran our eye over Marine Products' (NYSE:MPX) trend of ROCE, we really liked what we saw.
What Is 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 Marine Products, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.37 = US$56m ÷ (US$184m - US$34m) (Based on the trailing twelve months to March 2023).
So, Marine Products has an ROCE of 37%. That's a fantastic return and not only that, it outpaces the average of 20% earned by companies in a similar industry.
Check out our latest analysis for Marine Products
Historical performance is a great place to start when researching a stock so above you can see the gauge for Marine Products' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Marine Products, check out these free graphs here.
What Can We Tell From Marine Products' ROCE Trend?
Marine Products deserves to be commended in regards to it's returns. The company has employed 92% more capital in the last five years, and the returns on that capital have remained stable at 37%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Marine Products can keep this up, we'd be very optimistic about its future.
Our Take On Marine Products' ROCE
Marine Products has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. However, over the last five years, the stock has only delivered a 12% return to shareholders who held over that period. So to determine if Marine Products is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
If you'd like to know about the risks facing Marine Products, we've discovered 1 warning sign 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.
About NYSE:MPX
Marine Products
Designs, manufactures, and sells recreational fiberglass powerboats for the sport boat and sport fishing boat markets worldwide.
Flawless balance sheet average dividend payer.
