Manaksia Coated Metals & Industries (NSE:MANAKCOAT) Is Doing The Right Things To Multiply Its Share Price

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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, we've noticed some promising trends at Manaksia Coated Metals & Industries (NSE:MANAKCOAT) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Manaksia Coated Metals & Industries, this is the formula:

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

0.11 = ₹251m ÷ (₹4.4b - ₹2.1b) (Based on the trailing twelve months to June 2021).

Thus, Manaksia Coated Metals & Industries has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Metals and Mining industry average it falls behind.

See our latest analysis for Manaksia Coated Metals & Industries

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

What Can We Tell From Manaksia Coated Metals & Industries' ROCE Trend?

The trends we've noticed at Manaksia Coated Metals & Industries are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 97% more capital is being employed now too. So we're very much inspired by what we're seeing at Manaksia Coated Metals & Industries thanks to its ability to profitably reinvest capital.

On a side note, Manaksia Coated Metals & Industries' current liabilities are still rather high at 49% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

In summary, it's great to see that Manaksia Coated Metals & Industries can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Manaksia Coated Metals & Industries does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is concerning...

While Manaksia Coated Metals & Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

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