The Trends At Astron Paper & Board Mill (NSE:ASTRON) That You Should Know About

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Astron Paper & Board Mill (NSE:ASTRON), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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 Astron Paper & Board Mill is:

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

0.12 = ₹233m ÷ (₹3.2b - ₹1.2b) (Based on the trailing twelve months to December 2020).

Therefore, Astron Paper & Board Mill has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Forestry industry average of 7.8% it's much better.

See our latest analysis for Astron Paper & Board Mill

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Astron Paper & Board Mill, check out these free graphs here.

What Does the ROCE Trend For Astron Paper & Board Mill Tell Us?

In terms of Astron Paper & Board Mill's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 22% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Astron Paper & Board Mill's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Astron Paper & Board Mill. These growth trends haven't led to growth returns though, since the stock has fallen 68% over the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

On a final note, we found 4 warning signs for Astron Paper & Board Mill (1 is concerning) you should be aware of.

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. 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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