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Moneysupermarket.com Group (LON:MONY) Could Be Struggling To Allocate Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So when we looked at Moneysupermarket.com Group (LON:MONY), they do have a high ROCE, but we weren't exactly elated from how returns are trending.

What Is Return On Capital Employed (ROCE)?

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 Moneysupermarket.com Group:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.30 = UK£89m ÷ (UK£409m - UK£114m) (Based on the trailing twelve months to December 2022).

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So, Moneysupermarket.com Group has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 24% earned by companies in a similar industry.

Check out our latest analysis for Moneysupermarket.com Group

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Above you can see how the current ROCE for Moneysupermarket.com Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Moneysupermarket.com Group.

What Can We Tell From Moneysupermarket.com Group's ROCE Trend?

In terms of Moneysupermarket.com Group's historical ROCE movements, the trend isn't fantastic. To be more specific, while the ROCE is still high, it's fallen from 59% where it was five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Moneysupermarket.com Group's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Moneysupermarket.com Group is reinvesting for growth and has higher sales as a result. These trends are starting to be recognized by investors since the stock has delivered a 5.4% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you'd like to know about the risks facing Moneysupermarket.com Group, we've discovered 1 warning sign that you should be aware of.

Moneysupermarket.com Group is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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