Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think MS Industrie (ETR:MSAG) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. Analysts use this formula to calculate it for MS Industrie:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.01 = €1.3m ÷ (€203m - €79m) (Based on the trailing twelve months to June 2022).

Therefore, MS Industrie has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Machinery industry average of 10.0%.

View our latest analysis for MS Industrie

In the above chart we have measured MS Industrie's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For MS Industrie Tell Us?

In terms of MS Industrie's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 3.7% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by MS Industrie's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 55% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

MS Industrie does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...