Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at MTQ (SGX:M05) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on MTQ is:

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

0.052 = S$5.8m ÷ (S$128m - S$18m) (Based on the trailing twelve months to March 2024).

Thus, MTQ has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 10%.

Check out our latest analysis for MTQ

Historical performance is a great place to start when researching a stock so above you can see the gauge for MTQ's ROCE against it's prior returns. If you'd like to look at how MTQ has performed in the past in other metrics, you can view this free graph of MTQ's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that MTQ is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 5.2%, which is always encouraging. While returns have increased, the amount of capital employed by MTQ has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 14%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.