Stock Analysis

Returns At Mohini Health & Hygiene (NSE:MHHL) Appear To Be Weighed Down

NSEI:MHHL
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher 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.

What is Return On Capital Employed (ROCE)?

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

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

0.13 = ₹126m ÷ (₹1.5b - ₹528m) (Based on the trailing twelve months to March 2021).

Therefore, Mohini Health & Hygiene has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 11% generated by the Medical Equipment industry.

View our latest analysis for Mohini Health & Hygiene

roce
NSEI:MHHL Return on Capital Employed November 9th 2021

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

What Can We Tell From Mohini Health & Hygiene's ROCE Trend?

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 three years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Mohini Health & Hygiene doesn't end up being a multi-bagger in a few years time.

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

In summary, Mohini Health & Hygiene isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Additionally, the stock's total return to shareholders over the last three years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 2 warning signs for Mohini Health & Hygiene (1 is a bit unpleasant) 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.

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