MDU Resources Group's (NYSE:MDU) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at MDU Resources Group (NYSE:MDU) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on MDU Resources Group is:

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

0.081 = US$579m ÷ (US$8.1b - US$900m) (Based on the trailing twelve months to March 2021).

So, MDU Resources Group has an ROCE of 8.1%. On its own that's a low return, but compared to the average of 4.8% generated by the Integrated Utilities industry, it's much better.

View our latest analysis for MDU Resources Group

Above you can see how the current ROCE for MDU Resources Group 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 MDU Resources Group here for free.

So How Is MDU Resources Group's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.1%. The amount of capital employed has increased too, by 22%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On MDU Resources Group's ROCE

To sum it up, MDU Resources Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 46% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if MDU Resources Group can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with MDU Resources Group and understanding them should be part of your investment process.

While MDU Resources Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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