Murudeshwar Ceramics' (NSE:MURUDCERA) Returns Have Hit A Wall

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at Murudeshwar Ceramics (NSE:MURUDCERA), it didn't seem to tick all of these boxes.

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 Murudeshwar Ceramics is:

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

0.049 = ₹184m ÷ (₹4.8b - ₹1.0b) (Based on the trailing twelve months to June 2022).

So, Murudeshwar Ceramics has an ROCE of 4.9%. In absolute terms, that's a low return and it also under-performs the Building industry average of 15%.

Check out our latest analysis for Murudeshwar Ceramics

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 Murudeshwar Ceramics' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

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. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. 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.

In Conclusion...

In summary, Murudeshwar Ceramics isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 43% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

Murudeshwar Ceramics does have some risks, we noticed 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.