Investors Should Be Encouraged By Madhya Bharat Agro Products' (NSE:MBAPL) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So when we looked at the ROCE trend of Madhya Bharat Agro Products (NSE:MBAPL) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Madhya Bharat Agro Products is:

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

0.49 = ₹1.5b ÷ (₹5.9b - ₹2.7b) (Based on the trailing twelve months to September 2022).

Therefore, Madhya Bharat Agro Products has an ROCE of 49%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 17%.

See our latest analysis for Madhya Bharat Agro Products

Historical performance is a great place to start when researching a stock so above you can see the gauge for Madhya Bharat Agro Products' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Madhya Bharat Agro Products, check out these free graphs here.

So How Is Madhya Bharat Agro Products' ROCE Trending?

We like the trends that we're seeing from Madhya Bharat Agro Products. The data shows that returns on capital have increased substantially over the last five years to 49%. Basically the business is earning more per dollar of capital invested and in addition to that, 157% more capital is being employed now too. So we're very much inspired by what we're seeing at Madhya Bharat Agro Products thanks to its ability to profitably reinvest capital.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 46% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

What We Can Learn From Madhya Bharat Agro Products' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Madhya Bharat Agro Products has. Since the stock has returned a staggering 2,618% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Madhya Bharat Agro Products, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.