Mannatech (NASDAQ:MTEX) Will Be Hoping To Turn Its Returns On Capital Around

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. And from a first read, things don't look too good at Mannatech (NASDAQ:MTEX), so let's see why.

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. Analysts use this formula to calculate it for Mannatech:

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

0.016 = US$313k ÷ (US$51m - US$31m) (Based on the trailing twelve months to March 2023).

Therefore, Mannatech has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 14%.

View our latest analysis for Mannatech

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Mannatech, check out these free graphs here.

So How Is Mannatech's ROCE Trending?

The trend of ROCE at Mannatech is showing some signs of weakness. Unfortunately, returns have declined substantially over the last five years to the 1.6% we see today. What's equally concerning is that the amount of capital deployed in the business has shrunk by 56% over that same period. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. If these underlying trends continue, we wouldn't be too optimistic going forward.

On a side note, Mannatech's current liabilities have increased over the last five years to 62% of total assets, effectively distorting the ROCE to some degree. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. What this means is that in reality, a rather large portion of the business is being funded by the likes of the company's suppliers or short-term creditors, which can bring some risks of its own.

The Bottom Line On Mannatech's ROCE

In summary, it's unfortunate that Mannatech is shrinking its capital base and also generating lower returns. In spite of that, the stock has delivered a 3.5% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Mannatech does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Mannatech 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.