Interregional Distribution Grid Company of the North-West (MCX:MRKZ) Has More To Do To Multiply In Value Going Forward

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Although, when we looked at Interregional Distribution Grid Company of the North-West (MCX:MRKZ), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Interregional Distribution Grid Company of the North-West:

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

0.046 = ₽1.4b ÷ (₽50b - ₽20b) (Based on the trailing twelve months to September 2021).

Therefore, Interregional Distribution Grid Company of the North-West has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 11%.

Check out our latest analysis for Interregional Distribution Grid Company of the North-West

In the above chart we have measured Interregional Distribution Grid Company of the North-West's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Interregional Distribution Grid Company of the North-West here for free.

The Trend Of ROCE

Things have been pretty stable at Interregional Distribution Grid Company of the North-West, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Interregional Distribution Grid Company of the North-West to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Interregional Distribution Grid Company of the North-West has been paying out a decent 42% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 39% of total assets, this reported ROCE would probably be less than4.6% because total capital employed would be higher.The 4.6% ROCE could be even lower if current liabilities weren't 39% of total assets, because the the formula would show a larger base of total capital employed. So while current liabilities isn't high right now, keep an eye out in case it increases further, because this can introduce some elements of risk.

In Conclusion...

In a nutshell, Interregional Distribution Grid Company of the North-West has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 9.6% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to continue researching Interregional Distribution Grid Company of the North-West, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Interregional Distribution Grid Company of the North-West 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.