- India
- /
- Paper and Forestry Products
- /
- NSEI:MAGNUM
Magnum Ventures (NSE:MAGNUM) Might Have The Makings Of A Multi-Bagger
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 Magnum Ventures' (NSE:MAGNUM) returns on capital, so let's have a look.
Understanding 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. To calculate this metric for Magnum Ventures, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.041 = ₹87m ÷ (₹3.1b - ₹961m) (Based on the trailing twelve months to June 2021).
Therefore, Magnum Ventures has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Forestry industry average of 12%.
View our latest analysis for Magnum Ventures
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 Magnum Ventures' past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
The fact that Magnum Ventures is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.1% on its capital. Not only that, but the company is utilizing 34% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 31%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
Our Take On Magnum Ventures' ROCE
Overall, Magnum Ventures gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with a respectable 66% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Magnum Ventures can keep these trends up, it could have a bright future ahead.
Magnum Ventures does come with some risks though, we found 4 warning signs in our investment analysis, and 3 of those shouldn't be ignored...
While Magnum Ventures isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
About NSEI:MAGNUM
Magnum Ventures
Engages in the manufacturing and trading of paper products in India.
Moderate with adequate balance sheet.