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Some Investors May Be Worried About Minerals Technologies' (NYSE:MTX) Returns On Capital

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into Minerals Technologies (NYSE:MTX), we weren't too upbeat about how things were going.

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. To calculate this metric for Minerals Technologies, this is the formula:

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

0.072 = US$210m ÷ (US$3.2b - US$289m) (Based on the trailing twelve months to April 2021).

Therefore, Minerals Technologies has an ROCE of 7.2%. In absolute terms, that's a low return but it's around the Chemicals industry average of 8.4%.

Check out our latest analysis for Minerals Technologies

roce
roce

Above you can see how the current ROCE for Minerals Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Minerals Technologies.

What The Trend Of ROCE Can Tell Us

In terms of Minerals Technologies' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 9.5% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Minerals Technologies becoming one if things continue as they have.

What We Can Learn From Minerals Technologies' ROCE

In summary, it's unfortunate that Minerals Technologies is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 19% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing, we've spotted 1 warning sign facing Minerals Technologies that you might find interesting.

While Minerals Technologies 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.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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