Returns On Capital At MoneyGram International (NASDAQ:MGI) Have Hit The Brakes

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at MoneyGram International (NASDAQ:MGI), it didn't seem to tick all of these boxes.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for MoneyGram International:

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

0.022 = US$95m ÷ (US$4.5b - US$103m) (Based on the trailing twelve months to September 2021).

So, MoneyGram International has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the IT industry average of 14%.

See our latest analysis for MoneyGram International

In the above chart we have measured MoneyGram International's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For MoneyGram International Tell Us?

There hasn't been much to report for MoneyGram International's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at MoneyGram International in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From MoneyGram International's ROCE

In summary, MoneyGram International isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 41% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think MoneyGram International has the makings of a multi-bagger.

If you want to know some of the risks facing MoneyGram International we've found 3 warning signs (1 is significant!) that you should be aware of before investing here.

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.