Yahoo Finance There's Been No Shortage Of Growth Recently For MasterBrand's (NYSE:MBC) Returns On Capital
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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at MasterBrand (NYSE:MBC) 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. To calculate this metric for MasterBrand, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$304m ÷ (US$2.4b - US$340m) (Based on the trailing twelve months to March 2024).
Therefore, MasterBrand has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Building industry average of 17%.
View 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, you can check out the forecasts from the analysts covering MasterBrand for free.
The Trend Of ROCE
MasterBrand has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last three years, the ROCE has climbed 66% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line
To sum it up, MasterBrand is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 41% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
MasterBrand does have some risks though, and we've spotted 1 warning sign 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.
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