Mold-Tek Technologies (NSE:MOLDTECH) Knows How To Allocate Capital Effectively

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Mold-Tek Technologies' (NSE:MOLDTECH) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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 Mold-Tek Technologies is:

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

0.23 = ₹200m ÷ (₹1.1b - ₹171m) (Based on the trailing twelve months to September 2022).

Thus, Mold-Tek Technologies has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Construction industry average of 11%.

Check out our latest analysis for Mold-Tek Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mold-Tek Technologies' ROCE against it's prior returns. If you'd like to look at how Mold-Tek Technologies 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 Mold-Tek Technologies Tell Us?

Mold-Tek Technologies is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 23%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 112%. 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 16%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Mold-Tek Technologies' ROCE

All in all, it's terrific to see that Mold-Tek Technologies is reaping the rewards from prior investments and is growing its capital base. And a remarkable 116% 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Mold-Tek Technologies (of which 1 is a bit concerning!) that you should know about.

Mold-Tek Technologies is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.