Stock Analysis

Investors Shouldn't Overlook The Favourable Returns On Capital At Mirza International (NSE:MIRZAINT)

NSEI:MIRZAINT
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There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Mirza International's (NSE:MIRZAINT) trend of ROCE, we really liked what we saw.

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. To calculate this metric for Mirza International, this is the formula:

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

0.22 = ₹2.5b ÷ (₹16b - ₹4.7b) (Based on the trailing twelve months to December 2022).

Therefore, Mirza International has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Luxury industry average of 12%.

See our latest analysis for Mirza International

roce
NSEI:MIRZAINT Return on Capital Employed March 30th 2023

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

The Trend Of ROCE

We'd be pretty happy with returns on capital like Mirza International. Over the past five years, ROCE has remained relatively flat at around 22% and the business has deployed 92% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

In Conclusion...

Mirza International has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. What's surprising though is that the stock has collapsed 72% over the last five years, so there might be other areas of the business hurting its prospects. So in light of that'd we think it's worthwhile looking further into this stock to see if there's any areas for concern.

Mirza International does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Mirza International is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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.