Mayor Tecnimont (BIT: MT) will want to reverse his return trends

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What are the first trends to look for to identify a title that could multiply over the long term? Generally, we will want to notice a growing trend return on capital employed (ROCE) and at the same time, a based capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigation Mayor Tecnimont (BIT: MT), we don’t think the current trends fit the mold of a multi-bagger.

What is Return on Employee Capital (ROCE)?

If you’ve never worked with ROCE before, it measures the “return” (profit before tax) that a business generates on capital employed in its business. To calculate this metric for Maire Tecnimont, here is the formula:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.048 = € 72m ÷ (€ 4.9bn – € 3.4bn) (Based on the last twelve months up to March 2021).

Therefore, Mayor Tecnimont has a ROCE of 4.8%. Even though it is in line with the industry average of 4.8%, it is still a poor performance in and of itself.

Discover our latest analysis for Maire Tecnimont

BIT: MT Return on capital employed on July 21, 2021

In the graph above, we measured Maire Tecnimont’s past ROCE against his past performance, but the future is arguably more important. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.

The ROCE trend

Apparently, the trend for ROCE at Maire Tecnimont does not inspire confidence. About five years ago, returns on capital were 18%, but since then they have fallen to 4.8%. And given that incomes have fallen while employing more capital, we would be cautious. This could mean that the company is losing its competitive advantage or market share, because even if more money is invested in companies, it actually produces a lower return – “less bang for the buck” per se.

On a separate but related note, it’s important to know that Maire Tecnimont has a 70% current liabilities to total assets ratio, which we consider to be quite high. What this actually means is that suppliers (or short-term creditors) fund a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally, we would like this to decrease as that would mean less risky bonds.

The result of Mayor Tecnimont’s ROCE

We are a little worried about Maire Tecnimont because despite the deployment of more capital in the company, the return on this capital and the sales have both fallen. However, the stock has generated a 43% return for shareholders over the past five years, so investors might expect the trends to reverse. Either way, the current underlying trends do not bode well for long term performance, so unless they reverse we would start looking elsewhere.

If you wish to continue your research on Maire Tecnimont, you may be interested in knowing the 2 warning signs that our analysis found.

Although Maire Tecnimont does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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