Investors Shouldn't Overlook Maan Aluminium's (NSE:MAANALU) Impressive Returns On Capital

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Maan Aluminium's (NSE:MAANALU) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Maan Aluminium:

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

0.37 = ₹339m ÷ (₹1.7b - ₹802m) (Based on the trailing twelve months to June 2022).

Thus, Maan Aluminium has an ROCE of 37%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

Check out our latest analysis for Maan Aluminium

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

We like the trends that we're seeing from Maan Aluminium. The data shows that returns on capital have increased substantially over the last five years to 37%. The amount of capital employed has increased too, by 160%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 47%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Maan Aluminium has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

Our Take On Maan Aluminium's ROCE

To sum it up, Maan Aluminium has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 163% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Maan Aluminium does come with some risks, and we've found 4 warning signs that you should be aware of.

Maan Aluminium is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.