Stock Analysis

Mohini Health & Hygiene's (NSE:MHHL) Returns Have Hit A Wall

NSEI:MHHL
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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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Mohini Health & Hygiene (NSE:MHHL), it didn't seem to tick all of these boxes.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Mohini Health & Hygiene, this is the formula:

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

0.14 = ₹143m ÷ (₹1.4b - ₹367m) (Based on the trailing twelve months to September 2022).

So, Mohini Health & Hygiene has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.0% generated by the Medical Equipment industry.

See our latest analysis for Mohini Health & Hygiene

roce
NSEI:MHHL Return on Capital Employed May 6th 2023

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're interested in investigating Mohini Health & Hygiene's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

There hasn't been much to report for Mohini Health & Hygiene's returns and its level of capital employed because both metrics have been steady for the past 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.

In Conclusion...

In summary, Mohini Health & Hygiene isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors may be recognizing these trends since the stock has only returned a total of 0.3% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to know some of the risks facing Mohini Health & Hygiene we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Mohini Health & Hygiene may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.