Be Wary Of Maharashtra Scooters (NSE:MAHSCOOTER) And Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after investigating Maharashtra Scooters (NSE:MAHSCOOTER), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Maharashtra Scooters:

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

0.0067 = ₹1.7b ÷ (₹258b - ₹213m) (Based on the trailing twelve months to December 2021).

Thus, Maharashtra Scooters has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Auto industry average of 14%.

View our latest analysis for Maharashtra Scooters

Historical performance is a great place to start when researching a stock so above you can see the gauge for Maharashtra Scooters' ROCE against it's prior returns. If you're interested in investigating Maharashtra Scooters' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Maharashtra Scooters' ROCE Trending?

On the surface, the trend of ROCE at Maharashtra Scooters doesn't inspire confidence. Around five years ago the returns on capital were 28%, but since then they've fallen to 0.7%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Maharashtra Scooters' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Maharashtra Scooters is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 133% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a final note, we've found 2 warning signs for Maharashtra Scooters that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.