Return Trends At Murudeshwar Ceramics (NSE:MURUDCERA) Aren't Appealing

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. 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. Although, when we looked at Murudeshwar Ceramics (NSE:MURUDCERA), it didn't seem to tick all of these boxes.

Understanding 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 Murudeshwar Ceramics is:

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

0.048 = ₹206m ÷ (₹5.4b - ₹1.2b) (Based on the trailing twelve months to June 2023).

So, Murudeshwar Ceramics has an ROCE of 4.8%. Ultimately, that's a low return and it under-performs the Building industry average of 16%.

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 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 don't be surprised if Murudeshwar Ceramics doesn't end up being a multi-bagger in a few years time.

The Bottom Line 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. Yet to long term shareholders the stock has gifted them an incredible 176% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 3 warning signs facing Murudeshwar Ceramics that you might find interesting.

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.