Returns On Capital Are Showing Encouraging Signs At Manaksia Aluminium (NSE:MANAKALUCO)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Manaksia Aluminium (NSE:MANAKALUCO) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Manaksia Aluminium:

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

0.14 = ₹245m ÷ (₹4.2b - ₹2.4b) (Based on the trailing twelve months to September 2023).

Thus, Manaksia Aluminium has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 15% generated by the Metals and Mining industry.

View 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.

What Can We Tell From Manaksia Aluminium's ROCE Trend?

Investors would be pleased with what's happening at Manaksia Aluminium. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 43%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Another thing to note, Manaksia Aluminium has a high ratio of current liabilities to total assets of 58%. 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.

The Bottom Line On Manaksia Aluminium's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Manaksia Aluminium has. Since the stock has returned a staggering 373% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Manaksia Aluminium, we've spotted 4 warning signs, and 2 of them can't be ignored.

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.

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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.