The Returns At MoneyMax Financial Services (Catalist:5WJ) Aren't Growing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of MoneyMax Financial Services (Catalist:5WJ) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for MoneyMax Financial Services, this is the formula:

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

0.16=S$46m ÷ (S$666m – S$385m) (Based on the trailing twelve months to June 2023).

Thus, MoneyMax Financial Services has an ROCE of 16%. In absolute terms, that’s a satisfactory return, but compared to the Specialty Retail industry average of 8.4% it’s much better.

See our latest analysis for MoneyMax Financial Services

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you’d like to look at how MoneyMax Financial Services has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn’t stand out much, but returns on a whole are decent. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 269% in that time. Since 16% is a moderate ROCE though, it’s good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 58% of total assets, is good to see from a business owner’s perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 58%, some of that risk is still prevalent.

The Bottom Line

To sum it up, MoneyMax Financial Services has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 115% return to those who’ve held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing: We’ve identified 4 warning signs with MoneyMax Financial Services (at least 2 which don’t sit too well with us) , and understanding them would certainly be useful.

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.