Some Investors May Be Worried About Marine Products' (NYSE:MPX) Returns On Capital

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2 days ago

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. 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. Having said that, from a first glance at Marine Products (NYSE:MPX) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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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 Marine Products is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = US$15m ÷ (US$183m - US$34m) (Based on the trailing twelve months to March 2025).
So, Marine Products has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 12% generated by the Leisure industry.
Check out our latest analysis for Marine Products
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're interested in investigating Marine Products' past further, check out this free graph covering Marine Products' past earnings, revenue and cash flow.
On the surface, the trend of ROCE at Marine Products doesn't inspire confidence. Over the last five years, returns on capital have decreased to 10% from 35% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
From the above analysis, we find it rather worrisome that returns on capital and sales for Marine Products have fallen, meanwhile the business is employing more capital than it was five years ago. Long term shareholders who've owned the stock over the last five years have experienced a 12% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
Marine Products does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
While Marine Products 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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