Many Would Be Envious Of MasterCraft Boat Holdings' (NASDAQ:MCFT) Excellent Returns On Capital
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, the ROCE of MasterCraft Boat Holdings (NASDAQ:MCFT) looks attractive right now, so lets see what the trend of returns can tell us.
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. Analysts use this formula to calculate it for MasterCraft Boat Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = US$74m ÷ (US$332m - US$81m) (Based on the trailing twelve months to December 2023).
Therefore, MasterCraft Boat Holdings has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Leisure industry average of 17%.
View our latest analysis for MasterCraft Boat Holdings
In the above chart we have measured MasterCraft Boat Holdings' 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 MasterCraft Boat Holdings for free.
So How Is MasterCraft Boat Holdings' ROCE Trending?
It's hard not to be impressed by MasterCraft Boat Holdings' returns on capital. The company has employed 21% more capital in the last five years, and the returns on that capital have remained stable at 29%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
Our Take On MasterCraft Boat Holdings' ROCE
MasterCraft Boat Holdings has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Yet over the last five years the stock has declined 10%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.
MasterCraft Boat Holdings does have some risks though, and we've spotted 1 warning sign for MasterCraft Boat Holdings that you might be interested in.
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.
