Returns On Capital Signal Tricky Times Ahead For MYT Netherlands Parent B.V (NYSE:MYTE)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at MYT Netherlands Parent B.V (NYSE:MYTE), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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 MYT Netherlands Parent B.V, this is the formula:

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

0.01 = €4.7m ÷ (€716m - €259m) (Based on the trailing twelve months to December 2024).

Therefore, MYT Netherlands Parent B.V has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 13%.

Check out our latest analysis for MYT Netherlands Parent B.V

Above you can see how the current ROCE for MYT Netherlands Parent B.V compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for MYT Netherlands Parent B.V .

How Are Returns Trending?

In terms of MYT Netherlands Parent B.V's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.0% from 8.9% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 36%, which has impacted the ROCE. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

Our Take On MYT Netherlands Parent B.V's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for MYT Netherlands Parent B.V. These growth trends haven't led to growth returns though, since the stock has fallen 14% over the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you'd like to know about the risks facing MYT Netherlands Parent B.V, we've discovered 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.