The Returns At Maharashtra Scooters (NSE:MAHSCOOTER) Aren't Growing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Maharashtra Scooters (NSE:MAHSCOOTER), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Maharashtra Scooters:

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

0.0077 = ₹1.9b ÷ (₹252b - ₹45m) (Based on the trailing twelve months to September 2022).

Therefore, Maharashtra Scooters has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Auto industry average of 18%.

Our analysis indicates that MAHSCOOTER is potentially undervalued!

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're interested in investigating Maharashtra Scooters' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Maharashtra Scooters Tell Us?

The returns on capital haven't changed much for Maharashtra Scooters in recent years. The company has consistently earned 0.8% for the last five years, and the capital employed within the business has risen 191% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Maharashtra Scooters' ROCE

Long story short, while Maharashtra Scooters has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 98% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we've found 1 warning sign for Maharashtra Scooters that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.