Will the Promising Trends At Mahindra EPC Irrigation (NSE:MAHEPC) Continue?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Mahindra EPC Irrigation (NSE:MAHEPC) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Mahindra EPC Irrigation, this is the formula:

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

0.18 = ₹308m ÷ (₹2.6b - ₹856m) (Based on the trailing twelve months to December 2020).

So, Mahindra EPC Irrigation has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 11% it's much better.

See our latest analysis for Mahindra EPC Irrigation

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

So How Is Mahindra EPC Irrigation's ROCE Trending?

The trends we've noticed at Mahindra EPC Irrigation are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 18%. The amount of capital employed has increased too, by 48%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that Mahindra EPC Irrigation is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 17% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Mahindra EPC Irrigation can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Mahindra EPC Irrigation that you might find interesting.

While Mahindra EPC Irrigation isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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