What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Murray Cod Australia's (ASX:MCA) returns on capital, so let's have a look.

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 Murray Cod Australia:

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

0.0092 = AU$1.2m ÷ (AU$138m - AU$3.9m) (Based on the trailing twelve months to December 2024).

Thus, Murray Cod Australia has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Food industry average of 7.6%.

View our latest analysis for Murray Cod Australia

Historical performance is a great place to start when researching a stock so above you can see the gauge for Murray Cod Australia's ROCE against it's prior returns. If you're interested in investigating Murray Cod Australia's past further, check out this free graph covering Murray Cod Australia's past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that Murray Cod Australia is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 0.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Murray Cod Australia is utilizing 293% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Murray Cod Australia's ROCE

In summary, it's great to see that Murray Cod Australia has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 14% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 4 warning signs we've spotted with Murray Cod Australia (including 3 which are 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.

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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.