Mangalam Alloys (NSE:MAL) Has Some Way To Go To Become A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. That's why when we briefly looked at Mangalam Alloys' (NSE:MAL) ROCE trend, we were pretty happy with what we saw.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Mangalam Alloys:

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

0.10 = ₹184m ÷ (₹4.5b - ₹2.6b) (Based on the trailing twelve months to September 2024).

So, Mangalam Alloys has an ROCE of 10%. In isolation, that's a pretty standard return but against the Metals and Mining industry average of 14%, it's not as good.

View our latest analysis for Mangalam Alloys

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mangalam Alloys' ROCE against it's prior returns. If you'd like to look at how Mangalam Alloys has performed in the past in other metrics, you can view this free graph of Mangalam Alloys' past earnings, revenue and cash flow.

What Does the ROCE Trend For Mangalam Alloys Tell Us?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 10% and the business has deployed 45% more capital into its operations. 10% is a pretty standard return, and it provides some comfort knowing that Mangalam Alloys has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a separate but related note, it's important to know that Mangalam Alloys has a current liabilities to total assets ratio of 59%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Mangalam Alloys' ROCE

In the end, Mangalam Alloys has proven its ability to adequately reinvest capital at good rates of return. Yet over the last year the stock has declined 15%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing: We've identified 4 warning signs with Mangalam Alloys (at least 2 which are a bit concerning) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.