Investors encountered slowing capital returns at Mohini Health & Hygiene (NSE: MHHL)
What trends should we look for if we want to identify stocks that can multiply in value over the long term? First, we’ll want to see proof come back on capital employed (ROCE) which is increasing, and on the other hand, a base capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. However, after investigating Mohini Health & Hygiene (NSE:MHHL), we don’t think current trends fit the mold of a multi-bagger.
Return on capital employed (ROCE): what is it?
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 Mohini Health & Hygiene:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.13 = ₹122m ÷ (₹1.6b – ₹641m) (Based on the last twelve months to March 2022).
Thereby, Mohini Health & Hygiene has a ROCE of 13%. In absolute terms, that’s a decent return, but compared to the medical equipment industry average of 8.4%, it’s much better.
Check out our latest analysis for Mohini Health & Hygiene
Historical performance is a great starting point when researching a stock. So above you can see Mohini Health & Hygiene’s ROCE gauge compared to its past returns. If you want to see how Mohini Health & Hygiene has performed in the past in other metrics, you can check this free chart of past profits, revenue and cash flow.
What can we say about the ROCE trend of Mohini Health & Hygiene?
Things have been fairly stable at Mohini Health & Hygiene, with its capital employed and returns on that capital remaining roughly the same over the past four years. Companies with these characteristics tend to be mature and stable operations, as they are past the growth phase. With that in mind, unless investment picks up in the future, we wouldn’t expect Mohini Health & Hygiene to be a multi-bagger in the future.
On a separate but related note, it’s important to know that Mohini Health & Hygiene has a current liabilities to total assets ratio of 41%, which we consider quite high. This effectively means that suppliers (or short-term creditors) finance a large part of the business, so just be aware that this may introduce some elements of risk. Although this is not necessarily a bad thing, it can be beneficial if this ratio is lower.
What we can learn from Mohini Health & Hygiene’s ROCE
We can conclude that when it comes to Mohini Health & Hygiene Returns on Capital Employed and trends, there is not much change to report. Given that the stock has gained an impressive 58% over the past five years, investors must be thinking that there are better things to come. Ultimately, if the underlying trends persist, we won’t be holding our breath that this is a multi-bagger going forward.
Finally, we found 5 Warning Signs for Mohini Health & Hygiene which we think you should be aware of.
Although Mohini Health & Hygiene does not generate the highest return, check out this free list of companies that achieve high returns on equity with strong balance sheets.
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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.