Returns On Capital Signal Tricky Times Ahead For Mirion Technologies (NYSE:MIR)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at Mirion Technologies (NYSE:MIR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Mirion Technologies, this is the formula:

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

0.012 = US$29m ÷ (US$2.6b - US$263m) (Based on the trailing twelve months to December 2024).

Thus, Mirion Technologies has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 10%.

See our latest analysis for Mirion Technologies

Above you can see how the current ROCE for Mirion Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Mirion Technologies for free.

What Does the ROCE Trend For Mirion Technologies Tell Us?

In terms of Mirion Technologies' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 2.5%, but since then they've fallen to 1.2%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Mirion Technologies' ROCE

To conclude, we've found that Mirion Technologies is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 90% over the last three years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know about the risks facing Mirion Technologies, we've discovered 1 warning sign 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.