Slowing yield rates at Mosaic (NYSE:MOS) leave little room for enthusiasm

Did you know that there are financial indicators that can provide clues to a potential multi-packer? First, we would like to identify a growing sector back on capital employed (ROCE) and then at the same time, ever-increasing growth base capital employed. This shows us that it is a capitalization machine, capable of continually reinvesting its profits into the business and generating higher returns. That said, at first glance Mosaic (NYSE:MOS) we’re not jumping out of our chairs at changing yields, but let’s take a closer look.

Understanding Return on Capital Employed (ROCE)

Just to clarify if you’re not sure, ROCE is a metric for assessing the pre-tax income (as a percentage) a company earns on the capital invested in its business. To calculate this metric for Mosaic, here is the formula:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.053 = $995 million ÷ ($23 billion – $4.0 billion) (Based on the last twelve months to March 2024).

So, Mosaic has an ROCE of 5.3%. Ultimately, this is a low return and underperforms the chemicals sector average of 9.5%.

Check out our latest analysis for Mosaic

Above, you can see how Mosaic’s current ROCE compares to its past returns on capital, but there’s only so much you can say about the past. If you want to see what analysts are predicting for the future, you should check out our free analyst report for Mosaic.

So, what is Mosaic’s ROCE trending?

Things have been fairly stable at Mosaic, with its capital employed and returns on that capital remaining roughly the same over the past five years. Companies with these characteristics tend to be mature and stable, having passed the growth phase. So don’t be surprised if Mosaic doesn’t become a multi-bagger in a few years. This likely explains why Mosaic pays out 33% of its earnings to shareholders as dividends. Since the company does not reinvest in itself, it makes sense to distribute a portion of the profits among shareholders.

The key to remember

We can conclude that when it comes to Mosaic’s returns on capital employed and trends, there is not much change to report. Given that the stock has gained an impressive 40% over the past five years, investors must be thinking that better things are to come. But if the trajectory of these underlying trends continues, we think the likelihood of it being a multi-bagger from here is not high.

On a separate note, we found 2 warning signs for Mosaic you will probably want to know more.

For those who like to invest in solid businesses, Look at this free list of companies with strong balance sheets and high returns on equity.

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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 constitute financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or your financial situation. Our goal is to provide you with targeted, long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.