We Like These Underlying Trends At Maharashtra Scooters (NSE:MAHSCOOTER)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, we've noticed some promising trends at Maharashtra Scooters (NSE:MAHSCOOTER) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.011 = ₹1.2b ÷ (₹115b - ₹128m) (Based on the trailing twelve months to December 2020).

Therefore, Maharashtra Scooters has an ROCE of 1.1%. 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 want to delve into the historical earnings, revenue and cash flow of Maharashtra Scooters, check out these free graphs here.

The Trend Of ROCE

The fact that Maharashtra Scooters is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.1% on its capital. In addition to that, Maharashtra Scooters is employing 3,489% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line

Overall, Maharashtra Scooters gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. 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.

One more thing to note, we've identified 1 warning sign with Maharashtra Scooters and understanding it should be part of your investment process.

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. 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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