Returns Are Gaining Momentum At Mangalam Global Enterprise (NSE:MGEL)

Simply Wall St · 10/15 00:40

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Mangalam Global Enterprise (NSE:MGEL) looks quite promising in regards to its trends of return on capital.

Understanding 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. To calculate this metric for Mangalam Global Enterprise, this is the formula:

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

0.19 = ₹344m ÷ (₹4.2b - ₹2.4b) (Based on the trailing twelve months to June 2024).

Thus, Mangalam Global Enterprise has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 13% generated by the Food industry.

See our latest analysis for Mangalam Global Enterprise

roce
NSEI:MGEL Return on Capital Employed October 15th 2024

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're interested in investigating Mangalam Global Enterprise's past further, check out this free graph covering Mangalam Global Enterprise's past earnings, revenue and cash flow.

The Trend Of ROCE

Mangalam Global Enterprise is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 233% more capital is being employed now too. 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. Effectively this means that suppliers or short-term creditors are now funding 57% of the business, which is more than it was five years ago. 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.

The Bottom Line On Mangalam Global Enterprise's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Mangalam Global Enterprise has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 99% return over the last three years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Mangalam Global Enterprise does have some risks, we noticed 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Mangalam Global Enterprise isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.