Stock Analysis

Mohini Health & Hygiene's (NSE:MHHL) Returns On Capital Not Reflecting Well On The Business

NSEI:MHHL
Source: Shutterstock

What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. And from a first read, things don't look too good at Mohini Health & Hygiene (NSE:MHHL), so let's see why.

What is Return On Capital Employed (ROCE)?

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 Mohini Health & Hygiene, this is the formula:

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

0.10 = ₹97m ÷ (₹1.6b - ₹614m) (Based on the trailing twelve months to September 2021).

Thus, Mohini Health & Hygiene has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 12% generated by the Medical Equipment industry.

Check out our latest analysis for Mohini Health & Hygiene

roce
NSEI:MHHL Return on Capital Employed February 22nd 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 Does the ROCE Trend For Mohini Health & Hygiene Tell Us?

There is reason to be cautious about Mohini Health & Hygiene, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 14% that they were earning three years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Mohini Health & Hygiene becoming one if things continue as they have.

The Bottom Line On Mohini Health & Hygiene's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors must expect better things on the horizon though because the stock has risen 18% in the last three years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you'd like to know more about Mohini Health & Hygiene, we've spotted 5 warning signs, and 3 of them are significant.

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.

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.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.