To find a multi-bagger stock, what are the underlying trends to look for in a business? First of all, we want to see a return on capital employed (ROCE) which increases, and on the other hand, a based capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. That is why, when we briefly examined Asian granito from India (NSE: ASIANTILES) Trend ROCE, we were pretty happy with what we saw.
What is Return on Capital Employed (ROCE)?
If you’ve never worked with ROCE before, it measures the “ return ” (profit before tax) that a business generates from the capital employed in its business. The formula for this calculation on Asian Granito India is:
Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.12 = ₹ 821 million ÷ (₹ 13 billion – ₹ 5.9 billion) (Based on the last twelve months up to December 2020).
Therefore, Asian Granito India has a ROCE of 12%. That’s a relatively normal return on capital, and it’s around the 11% generated by the construction industry.
Discover our latest analyzes for Asian Granito India
Historical performance is a great place to start when looking for a stock, above you can see the gauge of Asian Granito India’s ROCE against its past returns. If you want to look at how Asian Granito India performed in the past in other stats, you can check out this free graph of past income, income and cash flow.
What does the ROCE trend tell us for Asian Granito India?
While current returns on capital are decent, they haven’t changed much. The company has steadily gained 12% over the past five years, and the capital employed within the company has increased by 56% during this period. Since 12% is moderate ROCE, it’s good to see that a company can keep reinvesting at these decent rates of return. Over long periods of time, returns like these may not be too exciting, but with consistency they can pay off in terms of stock price returns.
In addition, the current liabilities of Asian Granito India are still quite high at 46% of total assets. This can lead to some risk as the company basically operates with quite a lot of dependence on its suppliers or other types of short term creditors. While this isn’t necessarily a bad thing, it can be beneficial if this ratio is lower.
The key to take away
The main thing to remember is that the Asian Granito India has proven its ability to continually reinvest at respectable rates of return. In light of this, the stock has only gained 11% over the past five years for shareholders who owned the stock during that time. So, due to the trends we’re seeing, we recommend that you take a closer look at this stock to see if it has the makings of a multi-bagger.
Since virtually every business faces risk, it’s worth knowing what they are, and we’ve spotted 6 warning signs for Asian Granito India (2 of which are significant!) that you should know.
If you want to look for strong businesses with significant income, check out this free list of companies with good balance sheets and impressive returns on equity
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