Murudeshwar Ceramics (NSE:MURUDCERA) Has More To Do To Multiply In Value Going Forward

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Murudeshwar Ceramics (NSE:MURUDCERA) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. To calculate this metric for Murudeshwar Ceramics, this is the formula:

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

0.049 = ₹207m ÷ (₹5.4b - ₹1.2b) (Based on the trailing twelve months to March 2023).

Therefore, Murudeshwar Ceramics has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Building industry average of 13%.

View 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 Does the ROCE Trend For Murudeshwar Ceramics 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

We can conclude that in regards to Murudeshwar Ceramics' returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 18% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Murudeshwar Ceramics does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is potentially serious...

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.