The Quest for Growth
Investing in a business that can grow substantially is not an easy feat, but it’s possible if you know where to look. One key metric to focus on is the return on capital employed (ROCE), which measures a company’s ability to generate profits from its invested capital. In this article, we’ll delve into Modine Manufacturing’s (NYSE:MOD) impressive ROCE trend and explore what it means for investors.
Return On Capital Employed (ROCE): What Is It?
If you’re new to financial metrics, let’s start with the basics. ROCE is a crucial indicator that measures a company’s ability to generate returns from its capital employed. The formula for calculating ROCE is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Modine Manufacturing’s ROCE: A Closer Look
Using the trailing twelve months to September 2024, we can calculate Modine Manufacturing’s ROCE as follows:
ROCE = US$277m ÷ (US$1.9b - US$537m)
ROCE = 0.20
With an ROCE of 20%, Modine Manufacturing is outperforming the Auto Components industry average of 11%. This indicates that the company is generating impressive returns from its invested capital.
The ROCE Trend: A Story of Consistent Improvement
Investors will be pleased to see that Modine Manufacturing’s ROCE has been on an upward trend over the last five years, increasing from an unknown value to 20% in the latest period. This indicates that the company is continually reinvesting its earnings at ever-higher rates of return.
But what’s driving this impressive improvement? The data shows that the amount of capital employed by Modine Manufacturing has increased by 46% over the last five years, indicating a significant expansion of the business. Moreover, current liabilities have decreased to 28% of total assets, which reduces the reliance on suppliers or short-term creditors.
The Bottom Line: A Multi-Bagger in the Making?
Modine Manufacturing’s impressive ROCE trend is a testament to its ability to compound returns by consistently reinvesting capital at increasing rates of return. This is a key characteristic of highly sought-after multi-baggers, and investors who have been rewarded with an astonishing 1,612% return over the last five years are likely to be recognizing these changes.
Why You Should Investigate Modine Manufacturing Further
Given the stock’s proven track record, it’s essential to investigate further to see if these trends are likely to persist. Remember that every business is unique, and there may be underlying factors driving these improvements.
Additional Resources: Exploring More Stocks with High ROCE
If you’re interested in searching for more stocks with impressive ROCE, check out our free list of stocks with solid balance sheets that are also earning high returns on equity. This can help you identify potential multi-baggers and make informed investment decisions.
Conclusion: A Guide to Finding Multi-Baggers
Finding a business that has the potential to grow substantially requires careful analysis of key financial metrics, such as ROCE. By focusing on companies with increasing returns on capital employed and expanding bases of capital employed, you can identify potential multi-baggers. Modine Manufacturing’s impressive ROCE trend is a great example of this phenomenon in action.
What to Do Next
- Research further: Investigate Modine Manufacturing’s business model, management team, and industry trends to determine if these improvements are likely to persist.
- Explore more stocks: Use our free list of stocks with solid balance sheets that are also earning high returns on equity to identify potential multi-baggers.
- Consult a financial advisor: If you’re unsure about any aspect of investing or would like personalized advice, consult a qualified financial advisor.
By following these steps and staying up-to-date with the latest news and trends, you can increase your chances of finding the next multi-bagger in your investment portfolio.
