Here's What To Make Of Murudeshwar Ceramics' (NSE:MURUDCERA) Decelerating Rates Of Return

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Murudeshwar Ceramics (NSE:MURUDCERA), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Murudeshwar Ceramics:

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

0.048 = ₹175m ÷ (₹4.7b - ₹1.1b) (Based on the trailing twelve months to September 2021).

So, Murudeshwar Ceramics has an ROCE of 4.8%. Ultimately, that's a low return and it under-performs the Building industry average of 14%.

Check out our latest analysis for Murudeshwar Ceramics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Murudeshwar Ceramics' ROCE against it's prior returns. If you're interested in investigating Murudeshwar Ceramics' past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Murudeshwar Ceramics, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Murudeshwar Ceramics to be a multi-bagger going forward.

Our Take On Murudeshwar Ceramics' ROCE

In a nutshell, Murudeshwar Ceramics has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly then, the total return to shareholders over the last five years has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a final note, we found 3 warning signs for Murudeshwar Ceramics (1 is potentially serious) you should be aware of.

While Murudeshwar Ceramics 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.

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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.