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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of MSA Safety (NYSE:MSA) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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 MSA Safety, this is the formula:

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

0.13 = US$269m ÷ (US$2.4b - US$336m) (Based on the trailing twelve months to June 2022).

Thus, MSA Safety has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Commercial Services industry.

Check out our latest analysis for MSA Safety

In the above chart we have measured MSA Safety's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for MSA Safety.

So How Is MSA Safety's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 88% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On MSA Safety's ROCE

To sum it up, MSA Safety has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 64% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, MSA Safety does come with some risks, and we've found 4 warning signs that you should be aware of.

While MSA Safety 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.