Returns On Capital At Manaksia Steels (NSE:MANAKSTEEL) Have Hit The Brakes

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Having said that, from a first glance at Manaksia Steels (NSE:MANAKSTEEL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. Analysts use this formula to calculate it for Manaksia Steels:

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

0.066 = ₹206m ÷ (₹5.2b - ₹2.1b) (Based on the trailing twelve months to June 2024).

Therefore, Manaksia Steels has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 16%.

View 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'd like to look at how Manaksia Steels has performed in the past in other metrics, you can view this free graph of Manaksia Steels' past earnings, revenue and cash flow.

What Does the ROCE Trend For Manaksia Steels Tell Us?

The returns on capital haven't changed much for Manaksia Steels in recent years. The company has employed 65% more capital in the last five years, and the returns on that capital have remained stable at 6.6%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Another thing to note, Manaksia Steels has a high ratio of current liabilities to total assets of 40%. 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 Key Takeaway

As we've seen above, Manaksia Steels' returns on capital haven't increased but it is reinvesting in the business. Yet to long term shareholders the stock has gifted them an incredible 615% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know about the risks facing Manaksia Steels, we've discovered 1 warning sign that you should be aware of.

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.