Returns On Capital Are Showing Encouraging Signs At Manaksia Coated Metals & Industries (NSE:MANAKCOAT)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Manaksia Coated Metals & Industries (NSE:MANAKCOAT) so let's look a bit deeper.

What Is 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. Analysts use this formula to calculate it for Manaksia Coated Metals & Industries:

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

0.13 = ₹289m ÷ (₹5.4b - ₹3.2b) (Based on the trailing twelve months to September 2023).

Thus, Manaksia Coated Metals & Industries has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 14%.

See our latest analysis for Manaksia Coated Metals & Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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?

Manaksia Coated Metals & Industries is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 144% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. 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, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 60% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Key Takeaway

To bring it all together, Manaksia Coated Metals & Industries has done well to increase the returns it's generating from its capital employed. And a remarkable 436% 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.

On a final note, we found 4 warning signs for Manaksia Coated Metals & Industries (1 can't be ignored) you should be aware of.

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.

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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.