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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 MasterBrand (NYSE:MBC) 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?
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 MasterBrand, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$279m ÷ (US$3.0b - US$378m) (Based on the trailing twelve months to September 2024).
Thus, MasterBrand has an ROCE of 11%. In isolation, that's a pretty standard return but against the Building industry average of 15%, it's not as good.
Check out our latest analysis for MasterBrand
In the above chart we have measured MasterBrand's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for MasterBrand .
So How Is MasterBrand's ROCE Trending?
There hasn't been much to report for MasterBrand's returns and its level of capital employed because both metrics have been steady for the past three years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect MasterBrand to be a multi-bagger going forward.
In Conclusion...
In a nutshell, MasterBrand has been trudging along with the same returns from the same amount of capital over the last three years. Although the market must be expecting these trends to improve because the stock has gained 21% over the last year. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
MasterBrand does have some risks though, and we've spotted 2 warning signs for MasterBrand that you might be interested in.
While MasterBrand 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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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.