A Look Into Astral’s (NSE:ASTRAL) Impressive Returns On Capital

If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base or capital employed. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Astral (NSE:ASTRAL) looks attractive right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

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 Astral, this is the formula:

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

0.21 = ₹5.8b ÷ (₹40b – ₹13b) (Based on the trailing twelve months to September 2022).

Therefore, Astral has an ROCE of 21%. That’s a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

Check out our latest analysis for Astral

roce
NSEI:ASTRAL Return on Capital Employed January 26th 2023

Above you can see how the current ROCE for Astral compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’re interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Astral Tell Us?

We’d be pretty happy with returns on capital like Astral. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 151% in that time. Returns like this are the envy of most businesses and given it has been repeatedly reinvested at these rates, that’s even better. You’ll see this when looking at well operated businesses or favorable business models.

The Bottom Line On Astral’s ROCE

In summary, we’re delighted to see that Astral has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And long term investors would be thrilled with the 315% return they’ve received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing to note, we’ve identified 1 warning sign with Astral and understanding this should be part of your investment process.

If you’d like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

Valuation is complex, but we’re helping make it simple.

Find out whether Astral is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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