Investors Will Want Marine Electricals (India)'s (NSE:MARINE) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 on that note, Marine Electricals (India) (NSE:MARINE) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Marine Electricals (India) is:

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

0.14 = ₹414m ÷ (₹6.2b - ₹3.3b) (Based on the trailing twelve months to March 2024).

Thus, Marine Electricals (India) has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 17% generated by the Electrical industry.

Check out our latest analysis for Marine Electricals (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 Marine Electricals (India)'s past further, check out this free graph covering Marine Electricals (India)'s past earnings, revenue and cash flow.

What Does the ROCE Trend For Marine Electricals (India) Tell Us?

We like the trends that we're seeing from Marine Electricals (India). The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 63%. 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.

Another thing to note, Marine Electricals (India) has a high ratio of current liabilities to total assets of 53%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Marine Electricals (India)'s ROCE

In summary, it's great to see that Marine Electricals (India) can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Marine Electricals (India) can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with Marine Electricals (India) and understanding these should be part of your investment process.

While Marine Electricals (India) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com