Returns on Capital Paint A Bright Future For Mangalore Refinery and Petrochemicals (NSE:MRPL)

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Mangalore Refinery and Petrochemicals (NSE:MRPL) looks great, so lets see what the trend can tell us.

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

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. Analysts use this formula to calculate it for Mangalore Refinery and Petrochemicals:

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

0.38 = ₹90b ÷ (₹356b - ₹121b) (Based on the trailing twelve months to December 2023).

So, Mangalore Refinery and Petrochemicals has an ROCE of 38%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

Check out 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, you can check out the forecasts from the analysts covering Mangalore Refinery and Petrochemicals for free.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Mangalore Refinery and Petrochemicals. The data shows that returns on capital have increased substantially over the last five years to 38%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 55%. So we're very much inspired by what we're seeing at Mangalore Refinery and Petrochemicals thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 34%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On Mangalore Refinery and Petrochemicals' ROCE

All in all, it's terrific to see that Mangalore Refinery and Petrochemicals is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 211% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Mangalore Refinery and Petrochemicals does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those make us uncomfortable...

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.