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

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Murudeshwar Ceramics (NSE:MURUDCERA), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Murudeshwar Ceramics is:

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

0.048 = ₹185m ÷ (₹5.1b - ₹1.2b) (Based on the trailing twelve months to September 2022).

Thus, Murudeshwar Ceramics has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Building industry average of 13%.

See 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 want to delve into the historical earnings, revenue and cash flow of Murudeshwar Ceramics, check out these free graphs here.

What Does the ROCE Trend For Murudeshwar Ceramics Tell Us?

Over the past five years, Murudeshwar Ceramics' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Murudeshwar Ceramics in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Key Takeaway

In a nutshell, Murudeshwar Ceramics has been trudging along with the same returns from the same amount of capital over the last five years. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. 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 come with some risks though, we found 5 warning signs in our investment analysis, and 2 of those don't sit too well with us...

While Murudeshwar Ceramics isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.