Shareholders Would Enjoy A Repeat Of Man Industries (India)'s (NSE:MANINDS) Recent Growth In Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Man Industries (India)'s (NSE:MANINDS) returns on capital, so let's have a look.

Understanding 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 Man Industries (India) is:

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

0.22 = ₹1.9b ÷ (₹18b - ₹9.1b) (Based on the trailing twelve months to March 2021).

So, Man Industries (India) has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Construction industry average of 9.2%.

View our latest analysis for Man Industries (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're interested in investigating Man Industries (India)'s past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Man Industries (India)'s ROCE Trending?

Man Industries (India) is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 95% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 51% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

Our Take On Man Industries (India)'s ROCE

To bring it all together, Man Industries (India) has done well to increase the returns it's generating from its capital employed. And a remarkable 141% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Man Industries (India), you might be interested to know about the 3 warning signs that our analysis has discovered.

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