Does Associated Alcohols & Breweries (NSE:ASALCBR) Have The DNA Of A Multi-Bagger?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Associated Alcohols & Breweries' (NSE:ASALCBR) look very promising so lets take a look.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Associated Alcohols & Breweries, this is the formula:

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

0.26 = ₹588m ÷ (₹2.8b - ₹598m) (Based on the trailing twelve months to September 2020).

Therefore, Associated Alcohols & Breweries has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Beverage industry average of 13%.

Check out our latest analysis for Associated Alcohols & Breweries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Associated Alcohols & Breweries' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Associated Alcohols & Breweries, check out these free graphs here.

What Does the ROCE Trend For Associated Alcohols & Breweries Tell Us?

We like the trends that we're seeing from Associated Alcohols & Breweries. Over the last five years, returns on capital employed have risen substantially to 26%. 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 108%. So we're very much inspired by what we're seeing at Associated Alcohols & Breweries thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 21%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

All in all, it's terrific to see that Associated Alcohols & Breweries is reaping the rewards from prior investments and is growing its capital base. And with a respectable 30% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. 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 separate note, we've found 2 warning signs for Associated Alcohols & Breweries you'll probably want to know about.

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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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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