Moneysupermarket.com Group (LON:MONY) Is Reinvesting At Lower Rates Of Return
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So while Moneysupermarket.com Group (LON:MONY) has a high ROCE right now, lets see what we can decipher from how returns are changing.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Moneysupermarket.com Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.36 = UK£97m ÷ (UK£405m - UK£138m) (Based on the trailing twelve months to December 2023).
Thus, Moneysupermarket.com Group has an ROCE of 36%. In absolute terms that's a great return and it's even better than the Interactive Media and Services industry average of 13%.
View our latest analysis for Moneysupermarket.com Group
In the above chart we have measured Moneysupermarket.com Group's 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 Moneysupermarket.com Group.
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at Moneysupermarket.com Group doesn't inspire confidence. To be more specific, while the ROCE is still high, it's fallen from 53% where it was five years ago. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Bottom Line On Moneysupermarket.com Group's ROCE
While returns have fallen for Moneysupermarket.com Group in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, total returns to shareholders over the last five years have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
If you're still interested in Moneysupermarket.com Group it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
