Margin Expansion

This scanner filters mid & small-cap stocks whose margins are improving for the past two years and have decent return metrics. Let’s learn more about the filters used.

Market Capitalization

For Indian companies, we’ll take the minimum market capitalization of INR 5,000 crores.

Return on Capital Employed (ROCE)

This refers to a financial ratio used to assess a company’s profitability and capital efficiency. ROCE indicates how effectively a company generates profits from its capital. A higher ROCE suggests better utilization of capital in generating profits. In this scanner, we have used that the preceding year’s ROCE should be greater than the average ROCE for the last 3 years as it ensures that the company is not only performing well recently but also maintaining or exceeding its average performance over a longer period.

Return on equity (ROE)

This metric measures a company’s profitability relative to shareholders’ equity. It shows how efficiently a company generates profit from its equity investment. ROE indicates management’s ability to generate returns on their investment. High ROE suggests effective use of shareholder funds, potentially signaling a financially healthy and efficient company. In this scanner, we filtered out companies whose average ROE of 3 years is greater than 12% as it identifies firms that consistently generate high returns on their invested capital through efficient capital allocation and operational effectiveness.

Operating Profit Margin (OPM)

This represents the percentage of revenue a company retains after deducting operating expenses. The operating profit margin metric helps to gauge a company’s efficiency in generating profits from its core business activities. Higher operating profit margins indicate better operational efficiency and potentially stronger financial health, making it an essential factor in investment decision-making. In this scanner, we filtered out companies whose current year OPM is greater than last year’s OPM and whose OPM of the last year was greater than the preceding year’s OPM because it identifies companies that are consistently improving their profitability, offers stronger financial health and potential for sustained growth.

By using the above filters for the scanner, we have obtained a list of companies that are focusing on improving margins and delivering strong shareholder returns.