Returns On Capital At Manaksia Steels (NSE:MANAKSTEEL) Have Stalled

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Manaksia Steels (NSE:MANAKSTEEL), we don't think it's current trends fit the mold of a multi-bagger.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)

0.10 = ₹323m ÷ (₹3.9b - ₹713m) (Based on the trailing twelve months to September 2023).

Therefore, Manaksia Steels has an ROCE of 10.0%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 15%.

View our latest analysis for Manaksia Steels

Historical performance is a great place to start when researching a stock so above you can see the gauge for Manaksia Steels' ROCE against it's prior returns. 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 past earnings, revenue and cash flow.

So How Is Manaksia Steels' ROCE Trending?

In terms of Manaksia Steels' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 10.0% for the last five years, and the capital employed within the business has risen 74% in that time. 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.

On a side note, Manaksia Steels has done well to reduce current liabilities to 18% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

Long story short, while Manaksia Steels has been reinvesting its capital, the returns that it's generating haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 119% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Manaksia Steels, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Manaksia Steels may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.