We Like Mannatech's (NASDAQ:MTEX) Returns And Here's How They're Trending

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Speaking of which, we noticed some great changes in Mannatech's (NASDAQ:MTEX) returns on capital, so let's have a look.

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

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 Mannatech, this is the formula:

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

0.31 = US$9.1m ÷ (US$60m - US$30m) (Based on the trailing twelve months to December 2021).

Thus, Mannatech has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 20% earned by companies in a similar industry.

See 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.

How Are Returns Trending?

Mannatech has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 774%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Mannatech appears to been achieving more with less, since the business is using 28% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

Another thing to note, Mannatech has a high ratio of current liabilities to total assets of 50%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

From what we've seen above, Mannatech has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a staggering 166% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 3 warning signs facing Mannatech that you might find interesting.

Mannatech is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.