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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Max Ventures and Industries (NSE:MAXVIL) 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. To calculate this metric for Max Ventures and Industries, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.019 = ₹364m ÷ (₹19b - ₹528m) (Based on the trailing twelve months to September 2022).
Therefore, Max Ventures and Industries has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 17%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Max Ventures and Industries' ROCE against it's prior returns. If you're interested in investigating Max Ventures and Industries' past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 1.9%. The amount of capital employed has increased too, by 160%. So we're very much inspired by what we're seeing at Max Ventures and Industries thanks to its ability to profitably reinvest capital.
One more thing to note, Max Ventures and Industries has decreased current liabilities to 2.7% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
Our Take On Max Ventures and Industries' ROCE
To sum it up, Max Ventures and Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 91% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.
Like most companies, Max Ventures and Industries does come with some risks, and we've found 2 warning signs that you should be aware of.
While Max Ventures and 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.
Valuation is complex, but we're helping make it simple.
Find out whether Max Ventures and Industries is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Max Ventures and Industries
Max Ventures and Industries Limited, through its subsidiaries, manufactures and sells packaging unmetallized and metallized biaxial oriented polypropylene films in India and internationally.
Solid track record with adequate balance sheet.