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A Close Look At Public Joint Stock Company Interregional Distribution Grid Company of Siberia’s (MCX:MRKS) 12% ROCE

Today we’ll evaluate Public Joint Stock Company Interregional Distribution Grid Company of Siberia (MCX:MRKS) to determine whether it could have potential as an investment idea. Specifically, we’re going to calculate its Return On Capital Employed (ROCE), in the hopes of getting some insight into the business.

First up, we’ll look at what ROCE is and how we calculate it. Second, we’ll look at its ROCE compared to similar companies. Then we’ll determine how its current liabilities are affecting its ROCE.

Return On Capital Employed (ROCE): What is it?

ROCE measures the amount of pre-tax profits a company can generate from the capital employed in its business. All else being equal, a better business will have a higher ROCE. Overall, it is a valuable metric that has its flaws. Author Edwin Whiting to be careful when comparing the ROCE of different businesses, since ‘No two businesses are exactly alike.

How Do You Calculate Return On Capital Employed?

The formula for calculating the return on capital employed is:

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

Or for Interregional Distribution Grid Company of Siberia:

0.12 = ₽4.3b ÷ (₽70b – ₽35b) (Based on the trailing twelve months to June 2019.)

So, Interregional Distribution Grid Company of Siberia has an ROCE of 12%.

View our latest analysis for Interregional Distribution Grid Company of Siberia

Does Interregional Distribution Grid Company of Siberia Have A Good ROCE?

When making comparisons between similar businesses, investors may find ROCE useful. Interregional Distribution Grid Company of Siberia’s ROCE appears to be substantially greater than the 9.3% average in the Electric Utilities industry. We consider this a positive sign, because it suggests it uses capital more efficiently than similar companies. Setting aside the industry comparison for now, Interregional Distribution Grid Company of Siberia’s ROCE is mediocre in absolute terms, considering the risk of investing in stocks versus the safety of a bank account. Investors may wish to consider higher-performing investments.

The image below shows how Interregional Distribution Grid Company of Siberia’s ROCE compares to its industry, and you can click it to see more detail on its past growth.

MISX:MRKS Past Revenue and Net Income, November 27th 2019

When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. Companies in cyclical industries can be difficult to understand using ROCE, as returns typically look high during boom times, and low during busts. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. Future performance is what matters, and you can see analyst predictions in our free report on analyst forecasts for the company.

Interregional Distribution Grid Company of Siberia’s Current Liabilities And Their Impact On Its ROCE

Current liabilities include invoices, such as supplier payments, short-term debt, or a tax bill, that need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.

Interregional Distribution Grid Company of Siberia has total liabilities of ₽35b and total assets of ₽70b. As a result, its current liabilities are equal to approximately 50% of its total assets. Interregional Distribution Grid Company of Siberia’s middling level of current liabilities have the effect of boosting its ROCE a bit.

The Bottom Line On Interregional Distribution Grid Company of Siberia’s ROCE

With this level of liabilities and a mediocre ROCE, there are potentially better investments out there. But note: make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).

I will like Interregional Distribution Grid Company of Siberia better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

If you spot an error that warrants correction, please contact the editor at [email protected]. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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