If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Mpac Group (LON:MPAC) and its trend of ROCE, we really liked what we saw.

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

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. To calculate this metric for Mpac Group, this is the formula:

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

0.08 = UK￡6.6m ÷ (UK￡138m - UK￡55m) (Based on the trailing twelve months to December 2023).

Therefore, Mpac Group has an ROCE of 8.0%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 13%.

See our latest analysis for Mpac Group

Above you can see how the current ROCE for Mpac Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Mpac Group .

So How Is Mpac Group's ROCE Trending?

The fact that Mpac Group is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 8.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Mpac Group is utilizing 51% 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.

Our Take On Mpac Group's ROCE

To the delight of most shareholders, Mpac Group has now broken into profitability. Since the stock has returned a staggering 214% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Mpac Group does have some risks though, and we've spotted 1 warning sign for Mpac Group that you might be interested in.

While Mpac Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.