Returns Are Gaining Momentum At MTAR Technologies (NSE:MTARTECH)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So when we looked at MTAR Technologies (NSE:MTARTECH) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on MTAR Technologies is:

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

0.16 = ₹832m ÷ (₹6.4b - ₹1.1b) (Based on the trailing twelve months to December 2021).

Thus, MTAR Technologies has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 15% generated by the Machinery industry.

See our latest analysis for MTAR Technologies

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

How Are Returns Trending?

We like the trends that we're seeing from MTAR Technologies. The data shows that returns on capital have increased substantially over the last four years to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 134% more capital is being employed now too. So we're very much inspired by what we're seeing at MTAR Technologies thanks to its ability to profitably reinvest capital.

What We Can Learn From MTAR Technologies' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what MTAR Technologies has. And with a respectable 70% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing MTAR Technologies, we've discovered 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.