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The Return Trends At Maharashtra Seamless (NSE:MAHSEAMLES) Look Promising
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Maharashtra Seamless' (NSE:MAHSEAMLES) returns on capital, so let's have a look.
What is Return On Capital Employed (ROCE)?
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 Maharashtra Seamless:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.08 = ₹3.5b ÷ (₹51b - ₹8.1b) (Based on the trailing twelve months to September 2020).
So, Maharashtra Seamless has an ROCE of 8.0%. On its own, that's a low figure but it's around the 9.6% average generated by the Metals and Mining industry.
View our latest analysis for Maharashtra Seamless
In the above chart we have measured Maharashtra Seamless' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Maharashtra Seamless here for free.
How Are Returns Trending?
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.0%. Basically the business is earning more per dollar of capital invested and in addition to that, 30% more capital is being employed now too. So we're very much inspired by what we're seeing at Maharashtra Seamless thanks to its ability to profitably reinvest capital.
The Bottom Line
All in all, it's terrific to see that Maharashtra Seamless is reaping the rewards from prior investments and is growing its capital base. And a remarkable 101% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
Like most companies, Maharashtra Seamless does come with some risks, and we've found 1 warning sign that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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This article by Simply Wall St is general in nature. 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.
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About NSEI:MAHSEAMLES
Maharashtra Seamless
Manufactures and sells seamless steel pipes and tubes in India.
Flawless balance sheet, undervalued and pays a dividend.