Capital investment trends at Mastercard (NYSE:MA) appear strong

If we want to find a potential multi-bagger, there are often underlying trends that can provide clues. First, we’ll want to see proof come back on capital employed (ROCE) which is increasing, and on the other hand, a base capital employed. This shows us that it is a compounding machine, capable of continuously reinvesting its profits back into the business and generating higher returns. So when we ran our eyes MasterCard (NYSE:MA) ROCE trend, we really liked what we saw.

What is return on capital employed (ROCE)?

For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. Analysts use this formula to calculate it for Mastercard:

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

0.44 = $11 billion ÷ ($37 billion – $12 billion) (Based on the last twelve months to March 2022).

Therefore, Mastercard has a ROCE of 44%. This is a fantastic return and not only that, it exceeds the 12% average earned by companies in a similar industry.

Discover our latest analysis for Mastercard

NYSE:MA Return on Capital Employed June 10, 2022

In the chart above, we measured Mastercard’s past ROCE against its past performance, but the future is arguably more important. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.

So what is Mastercard’s ROCE trend?

In terms of Mastercard’s ROCE history, that’s pretty impressive. The company has employed 120% more capital over the past five years, and the return on that capital has remained stable at 44%. With such high returns, it’s great that the company can continually reinvest its money at such attractive rates of return. You will see this when you look at well-run businesses or favorable business models.

The essential

In summary, we are pleased to see that Mastercard has accrued returns by reinvesting at consistently high rates of return, as these are common characteristics of a multi-bagger. And long-term investors would be delighted with the 195% return they’ve received over the past five years. So while the stock may be more “expensive” than it was before, we believe the strong fundamentals warrant this stock for further research.

One more thing to note, we have identified 1 warning sign with Mastercard and understanding it should be part of your investment process.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.