Will MITCON Consultancy & Engineering Services (NSE:MITCON) Multiply In Value Going Forward?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think MITCON Consultancy & Engineering Services (NSE:MITCON) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is 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. Analysts use this formula to calculate it for MITCON Consultancy & Engineering Services:

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

0.048 = ₹81m ÷ (₹1.9b - ₹250m) (Based on the trailing twelve months to March 2020).

Therefore, MITCON Consultancy & Engineering Services has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 8.8%.

View our latest analysis for MITCON Consultancy & Engineering Services

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'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.

So How Is MITCON Consultancy & Engineering Services' ROCE Trending?

The returns on capital haven't changed much for MITCON Consultancy & Engineering Services in recent years. The company has employed 89% more capital in the last five years, and the returns on that capital have remained stable at 4.8%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From MITCON Consultancy & Engineering Services' ROCE

Long story short, while MITCON Consultancy & Engineering Services has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 44% over the last three years, investors may not be too optimistic on this trend improving either. 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.

If you'd like to know more about MITCON Consultancy & Engineering Services, we've spotted 4 warning signs, and 3 of them are a bit concerning.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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