Man Infraconstruction's (NSE:MANINFRA) Returns On Capital Are Heading Higher

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. 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, we've noticed some promising trends at Man Infraconstruction (NSE:MANINFRA) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Man Infraconstruction:

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

0.053 = ₹564m ÷ (₹13b - ₹2.8b) (Based on the trailing twelve months to December 2020).

Thus, Man Infraconstruction has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Construction industry average of 8.4%.

Check out our latest analysis for Man Infraconstruction

Historical performance is a great place to start when researching a stock so above you can see the gauge for Man Infraconstruction's ROCE against it's prior returns. If you'd like to look at how Man Infraconstruction has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Man Infraconstruction Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.3%. The amount of capital employed has increased too, by 35%. So we're very much inspired by what we're seeing at Man Infraconstruction thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Man Infraconstruction has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 5.8% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing: We've identified 3 warning signs with Man Infraconstruction (at least 2 which are a bit concerning) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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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