The Returns On Capital At Mannatech (NASDAQ:MTEX) Don't Inspire Confidence

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after glancing at the trends within Mannatech (NASDAQ:MTEX), we weren't too hopeful.

Return On Capital Employed (ROCE): What is it?

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)

0.22 = US$7.3m ÷ (US$63m - US$29m) (Based on the trailing twelve months to September 2020).

Thus, Mannatech has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 16%.

View our latest analysis for Mannatech

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mannatech's ROCE against it's prior returns. If you'd like to look at how Mannatech has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Mannatech's ROCE Trending?

There is reason to be cautious about Mannatech, given the returns are trending downwards. About five years ago, returns on capital were 29%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Mannatech to turn into a multi-bagger.

Another thing to note, Mannatech has a high ratio of current liabilities to total assets of 46%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Mannatech's ROCE

In summary, it's unfortunate that Mannatech is generating lower returns from the same amount of capital. Despite the concerning underlying trends, the stock has actually gained 12% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you'd like to know more about Mannatech, we've spotted 5 warning signs, and 2 of them are concerning.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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