Returns on Capital Paint A Bright Future For Associated Alcohols & Breweries (NSE:ASALCBR)

Simply Wall St
May 21, 2021
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There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Associated Alcohols & Breweries' (NSE:ASALCBR) 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. The formula for this calculation on Associated Alcohols & Breweries is:

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

0.31 = ₹694m ÷ (₹2.8b - ₹598m) (Based on the trailing twelve months to December 2020).

So, Associated Alcohols & Breweries has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

See our latest analysis for Associated Alcohols & Breweries

NSEI:ASALCBR Return on Capital Employed May 22nd 2021

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.

How Are Returns Trending?

Investors would be pleased with what's happening at Associated Alcohols & Breweries. The data shows that returns on capital have increased substantially over the last five years to 31%. The amount of capital employed 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. This tells us that Associated Alcohols & Breweries has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Associated Alcohols & Breweries' ROCE

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 a remarkable 115% total return over the last year tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Associated Alcohols & Breweries can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

Associated Alcohols & Breweries is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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