Yahoo Finance Shareholders Would Enjoy A Repeat Of Mensch und Maschine Software's (ETR:MUM) Recent Growth In Returns
If you're looking for a multi-bagger, there's a few things to keep an eye out 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Mensch und Maschine Software (ETR:MUM) looks great, so lets see what the trend can tell us.
Understanding 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. The formula for this calculation on Mensch und Maschine Software is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.41 = €47m ÷ (€176m - €64m) (Based on the trailing twelve months to September 2023).
Thus, Mensch und Maschine Software has an ROCE of 41%. In absolute terms that's a great return and it's even better than the Software industry average of 14%.
View our latest analysis for Mensch und Maschine Software
In the above chart we have measured Mensch und Maschine Software's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Mensch und Maschine Software .
What Does the ROCE Trend For Mensch und Maschine Software Tell Us?
Mensch und Maschine Software is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 41%. Basically the business is earning more per dollar of capital invested and in addition to that, 66% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line
In summary, it's great to see that Mensch und Maschine Software can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 95% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Mensch und Maschine Software can keep these trends up, it could have a bright future ahead.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for MUM on our platform that is definitely worth checking out.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.
