Returns At CMM Infraprojects (NSE:CMMIPL) Appear To Be Weighed Down

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at CMM Infraprojects (NSE:CMMIPL), it didn't seem to tick all of these boxes.

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 CMM Infraprojects is:

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

0.14 = ₹104m ÷ (₹1.3b - ₹592m) (Based on the trailing twelve months to September 2021).

Thus, CMM Infraprojects has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 10% it's much better.

Check out our latest analysis for CMM Infraprojects

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

How Are Returns Trending?

Over the past five years, CMM Infraprojects' ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if CMM Infraprojects doesn't end up being a multi-bagger in a few years time.

On a separate but related note, it's important to know that CMM Infraprojects has a current liabilities to total assets ratio of 44%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On CMM Infraprojects' ROCE

In a nutshell, CMM Infraprojects has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has gained an impressive 38% over the last three years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for CMM Infraprojects (of which 3 can't be ignored!) that you should know about.

While CMM Infraprojects may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.