Yahoo Finance How Has Minerals Technologies (NYSE:MTX) Allocated Its Capital?
When researching a stock for investment, what can tell us that the company is in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. In light of that, from a first glance at Minerals Technologies (NYSE:MTX), we've spotted some signs that it could be struggling, so let's investigate.
What is Return On Capital Employed (ROCE)?
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 Minerals Technologies, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = US$213m ÷ (US$3.2b - US$295m) (Based on the trailing twelve months to December 2020).
Therefore, Minerals Technologies has an ROCE of 7.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.5%.
View our latest analysis for Minerals Technologies
In the above chart we have measured Minerals Technologies' 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 Minerals Technologies.
How Are Returns Trending?
There is reason to be cautious about Minerals Technologies, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 9.7% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Minerals Technologies becoming one if things continue as they have.
What We Can Learn From Minerals Technologies' ROCE
In summary, it's unfortunate that Minerals Technologies is generating lower returns from the same amount of capital. Yet despite these concerning fundamentals, the stock has performed strongly with a 53% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.
On a separate note, we've found 1 warning sign for Minerals Technologies you'll probably want to know about.
While Minerals Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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