Returns Are Gaining Momentum At Manitowoc Company (NYSE:MTW)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So on that note, Manitowoc Company (NYSE:MTW) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Manitowoc Company:

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

0.069 = US$81m ÷ (US$1.7b - US$508m) (Based on the trailing twelve months to June 2021).

So, Manitowoc Company has an ROCE of 6.9%. Ultimately, that's a low return and it under-performs the Machinery industry average of 9.6%.

See our latest analysis for Manitowoc Company

roce

Above you can see how the current ROCE for Manitowoc Company 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 Manitowoc Company.

So How Is Manitowoc Company's ROCE Trending?

Manitowoc Company 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 279% 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.

What We Can Learn From Manitowoc Company's ROCE

To bring it all together, Manitowoc Company has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 26% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Manitowoc Company does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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