What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at MasterCraft Boat Holdings (NASDAQ:MCFT), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on MasterCraft Boat Holdings is:

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

0.041 = US$9.6m ÷ (US$309m - US$73m) (Based on the trailing twelve months to September 2024).

So, MasterCraft Boat Holdings has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Leisure industry average of 11%.

Check out our latest analysis for MasterCraft Boat Holdings

In the above chart we have measured MasterCraft Boat Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering MasterCraft Boat Holdings for free.

What Does the ROCE Trend For MasterCraft Boat Holdings Tell Us?

On the surface, the trend of ROCE at MasterCraft Boat Holdings doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.1% from 35% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On MasterCraft Boat Holdings' ROCE

We're a bit apprehensive about MasterCraft Boat Holdings because despite more capital being deployed in the business, returns on that capital and sales have both fallen. In spite of that, the stock has delivered a 15% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you'd like to know about the risks facing MasterCraft Boat Holdings, we've discovered 2 warning signs that you should be aware of.

While MasterCraft Boat Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.