Manaksia Aluminium (NSE:MANAKALUCO) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Manaksia Aluminium (NSE:MANAKALUCO) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Manaksia Aluminium is:

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

0.038 = ₹52m ÷ (₹2.7b - ₹1.3b) (Based on the trailing twelve months to December 2020).

Therefore, Manaksia Aluminium has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 12%.

Check out our latest analysis for Manaksia Aluminium

Historical performance is a great place to start when researching a stock so above you can see the gauge for Manaksia Aluminium's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Manaksia Aluminium, check out these free graphs here.

The Trend Of ROCE

While there are companies with higher returns on capital out there, we still find the trend at Manaksia Aluminium promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 610% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a side note, Manaksia Aluminium's current liabilities are still rather high at 49% of total assets. 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 Manaksia Aluminium's ROCE

To sum it up, Manaksia Aluminium is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 470% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Manaksia Aluminium does have some risks though, and we've spotted 2 warning signs for Manaksia Aluminium that you might be interested in.

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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