MITCON Consultancy & Engineering Services (NSE:MITCON) Shareholders Will Want The ROCE Trajectory To Continue

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at MITCON Consultancy & Engineering Services (NSE:MITCON) so let's look a bit deeper.

What Is 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. To calculate this metric for MITCON Consultancy & Engineering Services, this is the formula:

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

0.068 = ₹126m ÷ (₹2.2b - ₹390m) (Based on the trailing twelve months to December 2022).

Thus, MITCON Consultancy & Engineering Services has an ROCE of 6.8%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 12%.

View our latest analysis for MITCON Consultancy & Engineering Services

Historical performance is a great place to start when researching a stock so above you can see the gauge for MITCON Consultancy & Engineering Services' ROCE against it's prior returns. If you'd like to look at how MITCON Consultancy & Engineering Services has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From MITCON Consultancy & Engineering Services' ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 6.8%. The amount of capital employed has increased too, by 102%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

All in all, it's terrific to see that MITCON Consultancy & Engineering Services is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 33% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

MITCON Consultancy & Engineering Services does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those shouldn't be ignored...

While MITCON Consultancy & Engineering Services 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.