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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, MS INTERNATIONAL (LON:MSI) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for MS INTERNATIONAL, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = UK£7.6m ÷ (UK£84m - UK£36m) (Based on the trailing twelve months to October 2022).
Therefore, MS INTERNATIONAL has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Aerospace & Defense industry average of 10.0% it's much better.
See our latest analysis for MS INTERNATIONAL
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of MS INTERNATIONAL, check out these free graphs here.
The Trend Of ROCE
We like the trends that we're seeing from MS INTERNATIONAL. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. The amount of capital employed has increased too, by 26%. So we're very much inspired by what we're seeing at MS INTERNATIONAL thanks to its ability to profitably reinvest capital.
Another thing to note, MS INTERNATIONAL has a high ratio of current liabilities to total assets of 43%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
In Conclusion...
All in all, it's terrific to see that MS INTERNATIONAL is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 229% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.