Maharashtra Scooters (NSE:MAHSCOOTER) Will Want To Turn Around Its Return Trends

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. In light of that, when we looked at Maharashtra Scooters (NSE:MAHSCOOTER) and its ROCE trend, we weren't exactly thrilled.

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)

0.00059 = ₹103m ÷ (₹173b - ₹112m) (Based on the trailing twelve months to June 2021).

Thus, Maharashtra Scooters has an ROCE of 0.06%. In absolute terms, that's a low return and it also under-performs the Auto industry average of 11%.

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'd like to look at how Maharashtra Scooters 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 Maharashtra Scooters Tell Us?

On the surface, the trend of ROCE at Maharashtra Scooters doesn't inspire confidence. Over the last five years, returns on capital have decreased to 0.06% from 31% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On Maharashtra Scooters' ROCE

We're a bit apprehensive about Maharashtra Scooters because despite more capital being deployed in the business, returns on that capital and sales have both fallen. The market must be rosy on the stock's future because even though the underlying trends aren't too encouraging, the stock has soared 247%. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

On a separate note, we've found 3 warning signs for Maharashtra Scooters you'll probably want to know about.

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.

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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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