These Return Metrics Don't Make MIRC Electronics (NSE:MIRCELECTR) Look Too Strong

When researching a stock for investment, what can tell us that the company is in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after we looked into MIRC Electronics (NSE:MIRCELECTR), the trends above didn't look too great.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on MIRC Electronics is:

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

0.0027 = ₹5.9m ÷ (₹6.5b - ₹4.3b) (Based on the trailing twelve months to December 2022).

So, MIRC Electronics has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 12%.

See our latest analysis for MIRC Electronics

Historical performance is a great place to start when researching a stock so above you can see the gauge for MIRC Electronics' ROCE against it's prior returns. If you'd like to look at how MIRC Electronics 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 MIRC Electronics' ROCE Trend?

We are a bit worried about the trend of returns on capital at MIRC Electronics. Unfortunately the returns on capital have diminished from the 27% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect MIRC Electronics to turn into a multi-bagger.

On a side note, MIRC Electronics' current liabilities are still rather high at 66% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On MIRC Electronics' ROCE

In summary, it's unfortunate that MIRC Electronics is generating lower returns from the same amount of capital. We expect this has contributed to the stock plummeting 76% during the last five years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing: We've identified 2 warning signs with MIRC Electronics (at least 1 which can't be ignored) , and understanding these would certainly be useful.

While MIRC Electronics 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.