Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at Mosaic (NYSE:MOS) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Mosaic, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.098 = US$1.8b ÷ (US$23b - US$4.7b) (Based on the trailing twelve months to September 2023).
So, Mosaic has an ROCE of 9.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 10%.
Check out our latest analysis for Mosaic
In the above chart we have measured Mosaic's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Mosaic here for free.
What Can We Tell From Mosaic's ROCE Trend?
Mosaic's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 101% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
Our Take On Mosaic's ROCE
To bring it all together, Mosaic has done well to increase the returns it's generating from its capital employed. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.
Mosaic does have some risks, we noticed 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.
While Mosaic 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.
About NYSE:MOS
Mosaic
Through its subsidiaries, produces and markets concentrated phosphate and potash crop nutrients in North America and internationally.
Excellent balance sheet with moderate growth potential.
