Maheshwari Logistics (NSE:MAHESHWARI) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Maheshwari Logistics' (NSE:MAHESHWARI) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Maheshwari Logistics:

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

0.20 = ₹448m ÷ (₹3.9b - ₹1.6b) (Based on the trailing twelve months to September 2021).

Therefore, Maheshwari Logistics has an ROCE of 20%. On its own, that's a standard return, however it's much better than the 14% generated by the Logistics industry.

Check out our latest analysis for Maheshwari Logistics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Maheshwari Logistics' ROCE against it's prior returns. If you're interested in investigating Maheshwari Logistics' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Maheshwari Logistics Tell Us?

While the returns on capital are good, they haven't moved much. The company has employed 132% more capital in the last five years, and the returns on that capital have remained stable at 20%. Since 20% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Maheshwari Logistics has done well to reduce current liabilities to 41% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. Although because current liabilities are still 41%, some of that risk is still prevalent.

What We Can Learn From Maheshwari Logistics' ROCE

To sum it up, Maheshwari Logistics has simply been reinvesting capital steadily, at those decent rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last three years. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Maheshwari Logistics does have some risks though, and we've spotted 4 warning signs for Maheshwari Logistics that you might be interested in.

While Maheshwari Logistics 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.