Asian Hotels (East) (NSE:AHLEAST) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So on that note, Asian Hotels (East) (NSE:AHLEAST) looks quite promising in regards to its trends of return on capital.

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 Asian Hotels (East):

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

0.096 = ₹213m ÷ (₹2.5b - ₹232m) (Based on the trailing twelve months to September 2023).

Therefore, Asian Hotels (East) has an ROCE of 9.6%. In absolute terms, that's a low return but it's around the Hospitality industry average of 11%.

Check out our latest analysis for Asian Hotels (East)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Asian Hotels (East)'s ROCE against it's prior returns. If you're interested in investigating Asian Hotels (East)'s past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Asian Hotels (East) has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 347% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Asian Hotels (East) appears to been achieving more with less, since the business is using 75% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line

In a nutshell, we're pleased to see that Asian Hotels (East) has been able to generate higher returns from less capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 2.6% to shareholders. So with that in mind, we think the stock deserves further research.

One more thing to note, we've identified 3 warning signs with Asian Hotels (East) and understanding these should be part of your investment process.

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. 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.