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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Mazarin (CVE:MAZ.H) and its ROCE trend, we weren't exactly thrilled.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Mazarin, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.042 = CA$1.5m ÷ (CA$41m - CA$4.9m) (Based on the trailing twelve months to September 2024).
Therefore, Mazarin has an ROCE of 4.2%. Even though it's in line with the industry average of 4.2%, it's still a low return by itself.
View our latest analysis for Mazarin
Historical performance is a great place to start when researching a stock so above you can see the gauge for Mazarin's ROCE against it's prior returns. If you're interested in investigating Mazarin's past further, check out this free graph covering Mazarin's past earnings, revenue and cash flow.
What Does the ROCE Trend For Mazarin Tell Us?
In terms of Mazarin's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 8.4%, but since then they've fallen to 4.2%. 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.
Our Take On Mazarin's ROCE
While returns have fallen for Mazarin in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These trends are starting to be recognized by investors since the stock has delivered a 40% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.