What Do The Returns At Manaksia Aluminium (NSE:MANAKALUCO) Mean Going Forward?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Manaksia Aluminium (NSE:MANAKALUCO) 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. The formula for this calculation on Manaksia Aluminium is:

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

0.10 = ₹145m ÷ (₹2.6b - ₹1.2b) (Based on the trailing twelve months to March 2020).

Therefore, Manaksia Aluminium has an ROCE of 10.0%. In absolute terms, that's a low return but it's around the Metals and Mining industry average of 11%.

View our latest analysis for Manaksia Aluminium

Historical performance is a great place to start when researching a stock so above you can see the gauge for Manaksia Aluminium's ROCE against it's prior returns. If you'd like to look at how Manaksia Aluminium has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Manaksia Aluminium Tell Us?

Manaksia Aluminium's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 5,558% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a separate but related note, it's important to know that Manaksia Aluminium has a current liabilities to total assets ratio of 45%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

To bring it all together, Manaksia Aluminium has done well to increase the returns it's generating from its capital employed. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 31% to shareholders. So with that in mind, we think the stock deserves further research.

One more thing: We've identified 3 warning signs with Manaksia Aluminium (at least 2 which are potentially serious) , and understanding them would certainly be useful.

While Manaksia Aluminium 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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