Yahoo Finance Here’s What’s Happening With Returns At MSA Safety (NYSE:MSA)
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at MSA Safety (NYSE:MSA) so let's look a bit deeper.
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. To calculate this metric for MSA Safety, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$244m ÷ (US$1.9b - US$311m) (Based on the trailing twelve months to December 2020).
So, MSA Safety has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 9.5% generated by the Commercial Services industry.
Check out our latest analysis for MSA Safety
In the above chart we have measured MSA Safety'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 MSA Safety.
What Does the ROCE Trend For MSA Safety Tell Us?
Investors would be pleased with what's happening at MSA Safety. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 33%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
What We Can Learn From MSA Safety's ROCE
To sum it up, MSA Safety has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 273% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
On a final note, we've found 2 warning signs for MSA Safety that we think you should be aware of.
While MSA Safety 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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