Mangalore Refinery and Petrochemicals (NSE:MRPL) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Mangalore Refinery and Petrochemicals (NSE:MRPL) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Mangalore Refinery and Petrochemicals, this is the formula:

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

0.12 = ₹26b ÷ (₹346b - ₹128b) (Based on the trailing twelve months to September 2024).

Thus, Mangalore Refinery and Petrochemicals has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Oil and Gas industry average of 10%.

View our latest analysis for Mangalore Refinery and Petrochemicals

In the above chart we have measured Mangalore Refinery and Petrochemicals' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Mangalore Refinery and Petrochemicals .

What The Trend Of ROCE Can Tell Us

Mangalore Refinery and Petrochemicals has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 12% on its capital. Not only that, but the company is utilizing 24% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Mangalore Refinery and Petrochemicals' ROCE

In summary, it's great to see that Mangalore Refinery and Petrochemicals has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 205% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with Mangalore Refinery and Petrochemicals (at least 1 which is concerning) , and understanding them would certainly be useful.

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.