Manoj Vaibhav Gems 'N' Jewellers (NSE:MVGJL) Is Reinvesting At Lower Rates Of Return

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Manoj Vaibhav Gems 'N' Jewellers (NSE:MVGJL), they do have a high ROCE, but we weren't exactly elated from how returns are trending.

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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 Manoj Vaibhav Gems 'N' Jewellers is:

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

0.21 = ₹1.5b ÷ (₹15b - ₹7.7b) (Based on the trailing twelve months to December 2024).

Therefore, Manoj Vaibhav Gems 'N' Jewellers has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

See our latest analysis for Manoj Vaibhav Gems 'N' Jewellers

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Manoj Vaibhav Gems 'N' Jewellers.

The Trend Of ROCE

On the surface, the trend of ROCE at Manoj Vaibhav Gems 'N' Jewellers doesn't inspire confidence. Historically returns on capital were even higher at 29%, but they have dropped over the last five years. However it looks like Manoj Vaibhav Gems 'N' Jewellers might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Manoj Vaibhav Gems 'N' Jewellers has done well to pay down its current liabilities to 52% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE. Keep in mind 52% is still pretty high, so those risks are still somewhat prevalent.

The Bottom Line On Manoj Vaibhav Gems 'N' Jewellers' ROCE

In summary, Manoj Vaibhav Gems 'N' Jewellers is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly then, the total return to shareholders over the last year has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing, we've spotted 2 warning signs facing Manoj Vaibhav Gems 'N' Jewellers that you might find interesting.

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.