Returns On Capital Are Showing Encouraging Signs At Mahindra & Mahindra (NSE:M&M)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Mahindra & Mahindra (NSE:M&M) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Mahindra & Mahindra, this is the formula:

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

0.14 = ₹224b ÷ (₹2.4t - ₹755b) (Based on the trailing twelve months to March 2024).

Therefore, Mahindra & Mahindra has an ROCE of 14%. In absolute terms, that's a pretty standard return but compared to the Auto industry average it falls behind.

See our latest analysis for Mahindra & Mahindra

Above you can see how the current ROCE for Mahindra & Mahindra compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Mahindra & Mahindra .

How Are Returns Trending?

Investors would be pleased with what's happening at Mahindra & Mahindra. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 53% more capital is being employed now too. So we're very much inspired by what we're seeing at Mahindra & Mahindra thanks to its ability to profitably reinvest capital.

The Key Takeaway

In summary, it's great to see that Mahindra & Mahindra can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 391% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Mahindra & Mahindra does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...

While Mahindra & Mahindra 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.

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