The Trends At Astron Paper & Board Mill (NSE:ASTRON) That You Should Know About

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Astron Paper & Board Mill (NSE:ASTRON) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Astron Paper & Board Mill is:

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

0.16 = ₹298m ÷ (₹3.3b - ₹1.4b) (Based on the trailing twelve months to March 2020).

Therefore, Astron Paper & Board Mill has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Forestry industry average of 11% it's much better.

Check out our latest analysis for Astron Paper & Board Mill

Historical performance is a great place to start when researching a stock so above you can see the gauge for Astron Paper & Board Mill's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Astron Paper & Board Mill, check out these free graphs here.

How Are Returns Trending?

When we looked at the ROCE trend at Astron Paper & Board Mill, we didn't gain much confidence. Around five years ago the returns on capital were 23%, but since then they've fallen to 16%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Another thing to note, Astron Paper & Board Mill has a high ratio of current liabilities to total assets of 43%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

In summary, Astron Paper & Board Mill is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 63% over the last year, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Astron Paper & Board Mill does have some risks, we noticed 4 warning signs (and 1 which is concerning) we think you should know about.

While Astron Paper & Board Mill isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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