Here's What To Make Of Aurangabad Distillery's (NSE:AURDIS) Decelerating Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So, when we ran our eye over Aurangabad Distillery's (NSE:AURDIS) trend of ROCE, we liked what we saw.

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What Is 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 Aurangabad Distillery:

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

0.18 = ₹257m ÷ (₹2.0b - ₹539m) (Based on the trailing twelve months to September 2024).

So, Aurangabad Distillery has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Beverage industry average of 15% it's much better.

View our latest analysis for Aurangabad Distillery

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

What Does the ROCE Trend For Aurangabad Distillery Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 152% more capital in the last five years, and the returns on that capital have remained stable at 18%. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 27% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

In the end, Aurangabad Distillery has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 234% return over the last three years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing: We've identified 2 warning signs with Aurangabad Distillery (at least 1 which is concerning) , and understanding them would certainly be useful.

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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.