Mirion Technologies (NYSE:MIR) Will Be Hoping To Turn Its Returns On Capital Around
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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after investigating Mirion Technologies (NYSE:MIR), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What is it?
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 Mirion Technologies:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.011 = US$14m ÷ (US$1.6b - US$200m) (Based on the trailing twelve months to September 2021).
Thus, Mirion Technologies has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 9.9%.
Check out our latest analysis for Mirion Technologies
In the above chart we have measured Mirion Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Mirion Technologies.
How Are Returns Trending?
On the surface, the trend of ROCE at Mirion Technologies doesn't inspire confidence. Around two years ago the returns on capital were 2.7%, but since then they've fallen to 1.1%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
Our Take On Mirion Technologies' ROCE
In summary, despite lower returns in the short term, we're encouraged to see that Mirion Technologies is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 24% over the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
One more thing: We've identified 3 warning signs with Mirion Technologies (at least 2 which shouldn't be ignored) , and understanding these would certainly be useful.
While Mirion 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.
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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.
