Macpower CNC Machines (NSE:MACPOWER) Is Aiming To Keep Up Its Impressive Returns

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Macpower CNC Machines (NSE:MACPOWER) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Macpower CNC Machines is:

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

0.25 = ₹312m ÷ (₹1.9b - ₹639m) (Based on the trailing twelve months to March 2024).

Therefore, Macpower CNC Machines has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Machinery industry average of 17%.

View our latest analysis for Macpower CNC Machines

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 Macpower CNC Machines' past further, check out this free graph covering Macpower CNC Machines' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We'd be pretty happy with returns on capital like Macpower CNC Machines. Over the past five years, ROCE has remained relatively flat at around 25% and the business has deployed 85% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Macpower CNC Machines can keep this up, we'd be very optimistic about its future.

In Conclusion...

In summary, we're delighted to see that Macpower CNC Machines has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And long term investors would be thrilled with the 1,164% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

While Macpower CNC Machines looks impressive, no company is worth an infinite price. The intrinsic value infographic for MACPOWER helps visualize whether it is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.

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