Returns On Capital Are A Standout For Energy-Mission Machineries (India) (NSE:EMMIL)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Energy-Mission Machineries (India) (NSE:EMMIL) we really liked what we saw.

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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. The formula for this calculation on Energy-Mission Machineries (India) is:

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

0.20 = ₹181m ÷ (₹1.3b - ₹458m) (Based on the trailing twelve months to September 2024).

Therefore, Energy-Mission Machineries (India) has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

See our latest analysis for Energy-Mission Machineries (India)

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Energy-Mission Machineries (India).

What Does the ROCE Trend For Energy-Mission Machineries (India) Tell Us?

The trends we've noticed at Energy-Mission Machineries (India) are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 20%. The amount of capital employed has increased too, by 233%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 34%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Energy-Mission Machineries (India) has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Energy-Mission Machineries (India)'s ROCE

To sum it up, Energy-Mission Machineries (India) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 35% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching Energy-Mission Machineries (India), you might be interested to know about the 2 warning signs that our analysis has discovered.

Energy-Mission Machineries (India) is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.