Stock Analysis

Investors Met With Slowing Returns on Capital At Mohini Health & Hygiene (NSE:MHHL)

NSEI:MHHL
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Mohini Health & Hygiene (NSE:MHHL), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Mohini Health & Hygiene:

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

0.13 = ₹122m ÷ (₹1.6b - ₹641m) (Based on the trailing twelve months to March 2022).

Thus, Mohini Health & Hygiene has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 8.4% it's much better.

View our latest analysis for Mohini Health & Hygiene

roce
NSEI:MHHL Return on Capital Employed July 14th 2022

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

Things have been pretty stable at Mohini Health & Hygiene, with its capital employed and returns on that capital staying somewhat the same for the last four years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Mohini Health & Hygiene to be a multi-bagger going forward.

On a separate but related note, it's important to know that Mohini Health & Hygiene has a current liabilities to total assets ratio of 41%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Mohini Health & Hygiene's ROCE

We can conclude that in regards to Mohini Health & Hygiene's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 58% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we've found 5 warning signs for Mohini Health & Hygiene that we think you should be aware of.

While Mohini Health & Hygiene isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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

Find out whether Mohini Health & Hygiene 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.

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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.