If you’re looking for a multi-bagger, there are a few things to watch out for. Ideally, a business will show two trends; first growth come back on capital employed (ROCE) and on the other hand, growth amount capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. So when we ran our eyes by Mario (NSE: MARICO) ROCE trend, we really liked what we saw.
What is return on capital employed (ROCE)?
For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. Analysts use this formula to calculate it for Marico:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.44 = ₹16b ÷ (₹58b – ₹22b) (Based on the last twelve months to June 2022).
Thereby, Marico has a ROCE of 44%. This is a fantastic return and not only that, it exceeds the 14% average earned by companies in a similar industry.
See our latest analysis for Marico
Above, you can see how Marico’s current ROCE compares to his past returns on capital, but you can’t say anything about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
What the ROCE trend can tell us
In terms of Marico’s ROCE story, that’s pretty impressive. The company has consistently gained 44% over the past five years and the capital employed within the company has increased by 52% over this period. Such returns are the envy of most companies and given that they have repeatedly reinvested at these rates, even better. You will see this when you look at well-run businesses or favorable business models.
Our take on Marico’s ROCE
In summary, we are pleased to see that Marico has accumulated returns by reinvesting at consistently high rates of return, as these are common characteristics of a multi-bagger. And the stock has followed suit by returning 79% to shareholders over the past five years. So while investors seem to recognize these promising trends, we still think the stock warrants further research.
One more thing: we have identified 2 warning signs with Marico (at least 1 which makes us a bit uneasy), and understanding them would certainly help.
Marico is not the only stock to generate high returns. If you want to see more, check out our free list of companies with high returns on equity with strong fundamentals.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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