The Return Trends At Asian Hotels (East) (NSE:AHLEAST) Look Promising

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Asian Hotels (East)'s (NSE:AHLEAST) returns on capital, so let's have a look.

Understanding 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. 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)

0.091 = ₹194m ÷ (₹2.4b - ₹272m) (Based on the trailing twelve months to June 2023).

Thus, Asian Hotels (East) has an ROCE of 9.1%. On its own, that's a low figure but it's around the 11% average generated by the Hospitality industry.

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.

What Can We Tell From Asian Hotels (East)'s ROCE Trend?

Asian Hotels (East) has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 446% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 76% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Asian Hotels (East) may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

What We Can Learn From Asian Hotels (East)'s ROCE

In the end, Asian Hotels (East) has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 2 warning signs facing Asian Hotels (East) that you might find interesting.

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. 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.