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There are a few key trends to look for if we want to identify the next 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. Although, when we looked at Mazarin (CVE:MAZ.H), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)
0.052 = CA$1.8m ÷ (CA$39m - CA$4.4m) (Based on the trailing twelve months to June 2024).
So, Mazarin has an ROCE of 5.2%. On its own that's a low return, but compared to the average of 3.3% generated by the Metals and Mining industry, it's much better.
Check out 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 Can We Tell From Mazarin's ROCE Trend?
When we looked at the ROCE trend at Mazarin, we didn't gain much confidence. To be more specific, ROCE has fallen from 8.0% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. 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
In summary, despite lower returns in the short term, we're encouraged to see that Mazarin is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 111% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.
If you'd like to know more about Mazarin, we've spotted 6 warning signs, and 4 of them make us uncomfortable.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.