Returns On Capital At Agria Group Holding AD (BUL:A72) Paint An Interesting Picture

By
Simply Wall St
Published
January 27, 2021
BUL:AGH

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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 of 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. However, after briefly looking over the numbers, we don't think Agria Group Holding AD (BUL:A72) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Agria Group Holding AD is:

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

0.073 = лв15m ÷ (лв365m - лв153m) (Based on the trailing twelve months to September 2020).

Therefore, Agria Group Holding AD has an ROCE of 7.3%. On its own that's a low return, but compared to the average of 5.3% generated by the Industrials industry, it's much better.

Check out our latest analysis for Agria Group Holding AD

roce
BUL:A72 Return on Capital Employed January 27th 2021

Above you can see how the current ROCE for Agria Group Holding AD 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.

How Are Returns Trending?

In terms of Agria Group Holding AD's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.3% from 51% five years ago. However it looks like Agria Group Holding AD might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

On a separate but related note, it's important to know that Agria Group Holding AD has a current liabilities to total assets ratio of 42%, which we'd consider pretty high. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Agria Group Holding AD's ROCE

To conclude, we've found that Agria Group Holding AD is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 37% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Agria Group Holding AD has the makings of a multi-bagger.

One more thing: We've identified 3 warning signs with Agria Group Holding AD (at least 1 which can't be ignored) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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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