If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at McCoy Global (TSE:MCB) so let's look a bit deeper.
Understanding 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. To calculate this metric for McCoy Global, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.097 = CA$5.5m ÷ (CA$72m - CA$15m) (Based on the trailing twelve months to March 2023).
Therefore, McCoy Global has an ROCE of 9.7%. In absolute terms, that's a low return but it's around the Energy Services industry average of 11%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for McCoy Global's ROCE against it's prior returns. If you're interested in investigating McCoy Global's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For McCoy Global Tell Us?
McCoy Global has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 9.7% on its capital. And unsurprisingly, like most companies trying to break into the black, McCoy Global is utilizing 37% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Bottom Line On McCoy Global's ROCE
To the delight of most shareholders, McCoy Global has now broken into profitability. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 9.8% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
On a separate note, we've found 3 warning signs for McCoy Global you'll probably want to know about.
While McCoy Global isn't earning the highest return, check out this free list of companies that are 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.
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