When it comes to identifying potential multi-baggers, one key indicator to consider is the Return on Capital Employed (ROCE). For Mangalore Refinery and Petrochemicals (NSE: MRPL), the ROCE paints a promising picture, indicating a substantial return on the capital invested in its business.
Understanding ROCE
ROCE is a crucial metric that assesses the percentage of pre-tax income a company earns on the capital employed in its operations. For MRPL, the formula yields an impressive ROCE of 38%, calculated based on earnings before interest and tax (EBIT) divided by total assets minus current liabilities.
Positive Trend in ROCE
The trend in MRPL’s ROCE over the past five years is particularly encouraging. It reveals a significant increase in returns on capital, reaching 38%. Notably, the company has effectively amplified its profitability per dollar of capital utilized, even as its capital base expanded by 55%. This suggests that MRPL is efficiently reinvesting its profits at increasingly lucrative rates.
Strengthening Fundamentals
Furthermore, MRPL’s ratio of current liabilities to total assets has declined to 34%, indicating reduced reliance on short-term funding sources. This affirms that the growth in ROCE reflects genuine improvements in the company’s operations rather than financial maneuvers.
Conclusion: A Company on the Rise
In summary, MRPL’s ability to capitalize on past investments and expand its capital base bodes well for its future prospects. The remarkable 211% return to shareholders over the last five years underscores investor recognition of these positive changes. However, while the fundamentals appear promising, conducting further due diligence is advisable to fully understand the company’s potential.
