Shareholders Are Optimistic That Marine Products (NYSE:MPX) Will Multiply In Value

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. That's why when we briefly looked at Marine Products' (NYSE:MPX) ROCE trend, we were very happy with what we saw.

Understanding Return On Capital Employed (ROCE)

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. 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)

0.33 = US$38m ÷ (US$142m - US$25m) (Based on the trailing twelve months to March 2022).

Therefore, Marine Products has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Leisure industry average of 20%.

See 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.

How Are Returns Trending?

Marine Products deserves to be commended in regards to it's returns. The company has employed 59% more capital in the last five years, and the returns on that capital have remained stable at 33%. 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.

The Bottom Line

Marine Products has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Yet over the last five years the stock has declined 23%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you'd like to know more about Marine Products, we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.

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.