In This Article:
Today we are going to look at Masi Agricola S.p.A. (BIT:MASI) to see whether it might be an attractive investment prospect. In particular, we'll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.
First, we'll go over how we calculate ROCE. Then we'll compare its ROCE to similar companies. And finally, we'll look at how its current liabilities are impacting its ROCE.
Understanding Return On Capital Employed (ROCE)
ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. In general, businesses with a higher ROCE are usually better quality. Overall, it is a valuable metric that has its flaws. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.'
How Do You Calculate Return On Capital Employed?
Analysts use this formula to calculate return on capital employed:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Or for Masi Agricola:
0.052 = €7.8m ÷ (€162m - €14m) (Based on the trailing twelve months to June 2019.)
Therefore, Masi Agricola has an ROCE of 5.3%.
View our latest analysis for Masi Agricola
Is Masi Agricola's ROCE Good?
When making comparisons between similar businesses, investors may find ROCE useful. Using our data, Masi Agricola's ROCE appears to be significantly below the 9.5% average in the Beverage industry. This performance is not ideal, as it suggests the company may not be deploying its capital as effectively as some competitors. Independently of how Masi Agricola compares to its industry, its ROCE in absolute terms is low; especially compared to the ~2.9% available in government bonds. Readers may wish to look for more rewarding investments.
Masi Agricola's current ROCE of 5.3% is lower than 3 years ago, when the company reported a 10% ROCE. So investors might consider if it has had issues recently. The image below shows how Masi Agricola's ROCE compares to its industry, and you can click it to see more detail on its past growth.
When considering ROCE, bear in mind that it reflects the past and does not necessarily predict the future. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. Since the future is so important for investors, you should check out our free report on analyst forecasts for Masi Agricola.