Shareholders Would Enjoy A Repeat Of Maan Aluminium's (NSE:MAANALU) Recent Growth In Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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. The formula for this calculation on Maan Aluminium is:

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

0.32 = ₹294m ÷ (₹1.7b - ₹802m) (Based on the trailing twelve months to March 2022).

So, Maan Aluminium has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 17%.

Check out our latest analysis for Maan Aluminium

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 want to delve into the historical earnings, revenue and cash flow of Maan Aluminium, check out these free graphs here.

So How Is Maan Aluminium's ROCE Trending?

Investors would be pleased with what's happening at Maan Aluminium. Over the last five years, returns on capital employed have risen substantially to 32%. 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.

One more thing to note, Maan Aluminium has decreased current liabilities to 47% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line

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. And a remarkable 193% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Maan Aluminium can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 4 warning signs facing Maan Aluminium that you might find interesting.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.