Yahoo Finance My Food Bag Group (NZSE:MFB) Is Investing Its Capital With Increasing Efficiency
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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, the ROCE of My Food Bag Group (NZSE:MFB) looks great, so lets see what the trend can tell us.
Understanding 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. Analysts use this formula to calculate it for My Food Bag Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.36 = NZ$29m ÷ (NZ$106m - NZ$25m) (Based on the trailing twelve months to March 2022).
Thus, My Food Bag Group has an ROCE of 36%. In absolute terms that's a great return and it's even better than the Consumer Retailing industry average of 15%.
See our latest analysis for My Food Bag Group
In the above chart we have measured My Food Bag Group'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 Can We Tell From My Food Bag Group's ROCE Trend?
My Food Bag Group has not disappointed with their ROCE growth. The figures show that over the last four years, ROCE has grown 243% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
What We Can Learn From My Food Bag Group's ROCE
To bring it all together, My Food Bag Group has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 34% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
On a separate note, we've found 1 warning sign for My Food Bag Group you'll probably want to know about.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.
