We Like These Underlying Trends At Astra Industrial Group (TADAWUL:1212)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So on that note, Astra Industrial Group (TADAWUL:1212) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Astra Industrial Group, this is the formula:

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

0.14 = ر.س215m ÷ (ر.س3.0b - ر.س1.5b) (Based on the trailing twelve months to September 2020).

So, Astra Industrial Group has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Industrials industry average of 5.5% it's much better.

Check out our latest analysis for Astra Industrial Group

Above you can see how the current ROCE for Astra Industrial Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Astra Industrial Group.

What Does the ROCE Trend For Astra Industrial Group Tell Us?

You'd find it hard not to be impressed with the ROCE trend at Astra Industrial Group. We found that the returns on capital employed over the last five years have risen by 528%. The company is now earning ر.س0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 43% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 49% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

The Bottom Line

In a nutshell, we're pleased to see that Astra Industrial Group has been able to generate higher returns from less capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 45% return over the last five years. In light of that, we think it's worth looking further into this stock because if Astra Industrial Group can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 2 warning signs for Astra Industrial Group you'll probably want to know about.

While Astra Industrial Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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