We Like Astra Industrial Group's (TADAWUL:1212) Returns And Here's How They're Trending

Did you know there are some financial metrics that can provide clues of a potential 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Astra Industrial Group's (TADAWUL:1212) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Astra Industrial Group is:

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

0.23 = ر.س383m ÷ (ر.س3.2b - ر.س1.5b) (Based on the trailing twelve months to September 2021).

Therefore, Astra Industrial Group has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Industrials industry average of 6.5%.

Check out our latest analysis for Astra Industrial Group

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

What The Trend Of ROCE Can Tell Us

Astra Industrial Group has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 620%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 36% less capital than it was five years ago. Astra Industrial Group may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 48% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

What We Can Learn From Astra Industrial Group's ROCE

In a nutshell, we're pleased to see that Astra Industrial Group has been able to generate higher returns from less capital. Since the stock has returned a staggering 184% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 3 warning signs facing Astra Industrial Group that you might find interesting.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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.

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