Maharashtra Seamless (NSE:MAHSEAMLES) Is Investing Its Capital With Increasing Efficiency

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Maharashtra Seamless (NSE:MAHSEAMLES) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Maharashtra Seamless is:

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

0.21 = ₹12b ÷ (₹61b - ₹4.9b) (Based on the trailing twelve months to December 2023).

Therefore, Maharashtra Seamless has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 15%.

See our latest analysis for Maharashtra Seamless

Above you can see how the current ROCE for Maharashtra Seamless compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Maharashtra Seamless for free.

So How Is Maharashtra Seamless' ROCE Trending?

The trends we've noticed at Maharashtra Seamless are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 42% more capital is being employed now too. 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.

What We Can Learn From Maharashtra Seamless' ROCE

To sum it up, Maharashtra Seamless has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Maharashtra Seamless, we've discovered 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.