Yahoo Finance The Return Trends At M.T.I Wireless Edge (LON:MWE) Look Promising
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Speaking of which, we noticed some great changes in M.T.I Wireless Edge's (LON:MWE) returns on capital, so let's have a look.
What is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for M.T.I Wireless Edge:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$4.2m ÷ (US$34m - US$9.1m) (Based on the trailing twelve months to March 2021).
Thus, M.T.I Wireless Edge has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 8.3% it's much better.
View our latest analysis for M.T.I Wireless Edge
In the above chart we have measured M.T.I Wireless Edge'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 M.T.I Wireless Edge.
What Does the ROCE Trend For M.T.I Wireless Edge Tell Us?
M.T.I Wireless Edge 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 132% 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Key Takeaway
As discussed above, M.T.I Wireless Edge appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 272% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
One more thing, we've spotted 2 warning signs facing M.T.I Wireless Edge that you might find interesting.
While M.T.I Wireless Edge 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.
This article by Simply Wall St is general in nature. 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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