Does Ausnutria Dairy (HKG:1717) Have The DNA Of A Multi-Bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Ausnutria Dairy's (HKG:1717) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Ausnutria Dairy:

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

0.22 = CN¥1.2b ÷ (CN¥8.9b - CN¥3.3b) (Based on the trailing twelve months to September 2020).

Thus, Ausnutria Dairy has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for Ausnutria Dairy

Above you can see how the current ROCE for Ausnutria Dairy 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 Ausnutria Dairy Tell Us?

We like the trends that we're seeing from Ausnutria Dairy. Over the last five years, returns on capital employed have risen substantially to 22%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 288%. So we're very much inspired by what we're seeing at Ausnutria Dairy thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 37%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

To sum it up, Ausnutria Dairy has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 1 warning sign for Ausnutria Dairy that we think you should be aware of.

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.

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