Returns Are Gaining Momentum At Magnum Ventures (NSE:MAGNUM)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Magnum Ventures (NSE:MAGNUM) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Magnum Ventures:

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

0.059 = ₹103m ÷ (₹3.1b - ₹1.4b) (Based on the trailing twelve months to March 2022).

Thus, Magnum Ventures has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 12%.

See our latest analysis for Magnum Ventures

Historical performance is a great place to start when researching a stock so above you can see the gauge for Magnum Ventures' ROCE against it's prior returns. If you're interested in investigating Magnum Ventures' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Magnum Ventures Tell Us?

Like most people, we're pleased that Magnum Ventures is now generating some pretax earnings. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 36% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 45% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

Our Take On Magnum Ventures' ROCE

In a nutshell, we're pleased to see that Magnum Ventures has been able to generate higher returns from less capital. And with a respectable 94% 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.

If you'd like to know more about Magnum Ventures, we've spotted 5 warning signs, and 3 of them are concerning.

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.

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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.