Madhya Bharat Agro Products (NSE:MBAPL) Might Have The Makings Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Madhya Bharat Agro Products' (NSE:MBAPL) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Madhya Bharat Agro Products:

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

0.19 = ₹872m ÷ (₹8.0b - ₹3.5b) (Based on the trailing twelve months to June 2024).

Thus, Madhya Bharat Agro Products has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 14% generated by the Chemicals industry.

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

What Does the ROCE Trend For Madhya Bharat Agro Products Tell Us?

The trends we've noticed at Madhya Bharat Agro Products are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 19%. The amount of capital employed has increased too, by 238%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 44% 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.

Our Take On Madhya Bharat Agro Products' ROCE

All in all, it's terrific to see that Madhya Bharat Agro Products is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 1,074% 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.

Madhya Bharat Agro Products does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

While Madhya Bharat Agro Products 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.