Returns On Capital Are Showing Encouraging Signs At Manitowoc Company (NYSE:MTW)
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Manitowoc Company (NYSE:MTW) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Manitowoc Company:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.074 = US$79m ÷ (US$1.6b - US$548m) (Based on the trailing twelve months to December 2022).
Therefore, Manitowoc Company has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 12%.
View our latest analysis for Manitowoc Company
Above you can see how the current ROCE for Manitowoc Company compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Manitowoc Company here for free.
So How Is Manitowoc Company's ROCE Trending?
Manitowoc Company is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 201% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Bottom Line On Manitowoc Company's ROCE
To bring it all together, Manitowoc Company has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 32% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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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