Mangalam Global Enterprise's (NSE:MGEL) Returns On Capital Are Heading Higher

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. With that in mind, we've noticed some promising trends at Mangalam Global Enterprise (NSE:MGEL) so let's look a bit deeper.

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. The formula for this calculation on Mangalam Global Enterprise is:

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

0.089 = ₹82m ÷ (₹1.7b - ₹763m) (Based on the trailing twelve months to December 2020).

So, Mangalam Global Enterprise has an ROCE of 8.9%. In absolute terms, that's a low return and it also under-performs the Food industry average of 12%.

Check out our latest analysis for Mangalam Global Enterprise

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 want to delve into the historical earnings, revenue and cash flow of Mangalam Global Enterprise, check out these free graphs here.

What Does the ROCE Trend For Mangalam Global Enterprise Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 8.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 2,945% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, Mangalam Global Enterprise's current liabilities are still rather high at 45% 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Mangalam Global Enterprise's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Mangalam Global Enterprise has. And with a respectable 20% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Mangalam Global Enterprise can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Mangalam Global Enterprise, we've spotted 4 warning signs, and 1 of them makes us a bit uncomfortable.

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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