Manaksia Steels (NSE:MANAKSTEEL) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So on that note, Manaksia Steels (NSE:MANAKSTEEL) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Manaksia Steels, this is the formula:

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

0.14 = ₹360m ÷ (₹3.6b - ₹1.1b) (Based on the trailing twelve months to September 2021).

Thus, Manaksia Steels has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 18% generated by the Metals and Mining industry.

Check out our latest analysis for Manaksia Steels

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're interested in investigating Manaksia Steels' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Manaksia Steels' ROCE Trending?

The trends we've noticed at Manaksia Steels are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 52% more capital is being employed now too. So we're very much inspired by what we're seeing at Manaksia Steels thanks to its ability to profitably reinvest capital.

One more thing to note, Manaksia Steels has decreased current liabilities to 30% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

To sum it up, Manaksia Steels has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 238% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Manaksia Steels can keep these trends up, it could have a bright future ahead.

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

While Manaksia Steels 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.