Apollo Sindoori Hotels (NSE:APOLSINHOT) Is Doing The Right Things To Multiply Its Share Price

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Apollo Sindoori Hotels (NSE:APOLSINHOT) looks quite promising in regards to its trends of return on capital.

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 Apollo Sindoori Hotels is:

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

0.011 = ₹13m ÷ (₹1.5b - ₹337m) (Based on the trailing twelve months to December 2020).

Thus, Apollo Sindoori Hotels has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 11%.

See our latest analysis for Apollo Sindoori Hotels

Historical performance is a great place to start when researching a stock so above you can see the gauge for Apollo Sindoori Hotels' ROCE against it's prior returns. If you'd like to look at how Apollo Sindoori Hotels has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Apollo Sindoori Hotels' ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 1.1%. The amount of capital employed has increased too, by 440%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 23%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

In summary, it's great to see that Apollo Sindoori Hotels can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Apollo Sindoori Hotels can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Apollo Sindoori Hotels that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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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