Returns On Capital Are Showing Encouraging Signs At Maharashtra Scooters (NSE:MAHSCOOTER)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 on that note, Maharashtra Scooters (NSE:MAHSCOOTER) looks quite promising in regards to its trends of return on capital.

What Is 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. The formula for this calculation on Maharashtra Scooters is:

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

0.0094 = ₹1.9b ÷ (₹204b - ₹112m) (Based on the trailing twelve months to June 2023).

Therefore, Maharashtra Scooters has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Auto industry average of 14%.

View our latest analysis for Maharashtra Scooters

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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.

So How Is Maharashtra Scooters' ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 0.9%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 148%. So we're very much inspired by what we're seeing at Maharashtra Scooters thanks to its ability to profitably reinvest capital.

The Key Takeaway

In summary, it's great to see that Maharashtra Scooters 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 with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Maharashtra Scooters looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MAHSCOOTER is currently trading for a fair price.

While Maharashtra Scooters isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.