【loan places corsicana tx】A Close Look At Astral Poly Technik Limited’s (NSE:ASTRAL) 22% ROCE

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Today we’ll evaluate Astral Poly Technik Limited (

NSE:ASTRAL

) to determine whether it could have potential as an investment idea. In particular, we’ll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.

First up, we’ll look at what ROCE is and how we calculate it. Then we’ll compare its ROCE to similar companies. Last but not least, we’ll look at what impact its current liabilities have on its ROCE.

Understanding Return On Capital Employed (ROCE)

ROCE measures the amount of pre-tax profits a company can generate from the capital employed in its business. Generally speaking a higher ROCE is better. In brief, it is a useful tool, but it is not without drawbacks. Author Edwin Whiting

says

to be careful when comparing the ROCE of different businesses, since ‘No two businesses are exactly alike.’

So, How Do We Calculate ROCE?

Analysts use this formula to calculate return on capital employed:

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

Or for Astral Poly Technik:

0.22 = ₹2.6b ÷ (₹20b – ₹5.8b) (Based on the trailing twelve months to September 2018.)

So,

Astral Poly Technik has an ROCE of 22%.

View our latest analysis for Astral Poly Technik

Is Astral Poly Technik’s ROCE Good?

When making comparisons between similar businesses, investors may find ROCE useful. Using our data, we find that Astral Poly Technik’s ROCE is meaningfully better than the 14% average in the Building industry. We would consider this a positive, as it suggests it is using capital more effectively than other similar companies. Regardless of where Astral Poly Technik sits next to its industry, its ROCE in absolute terms appears satisfactory, and this company could be worth a closer look.

NSEI:ASTRAL Last Perf February 1st 19

When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. ROCE is only a point-in-time measure. Since the future is so important for investors, you should check out our

free

report on analyst forecasts for Astral Poly Technik

.

Do Astral Poly Technik’s Current Liabilities Skew Its ROCE?

Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To counteract this, we check if a company has high current liabilities, relative to its total assets.

Story continues

Astral Poly Technik has total assets of ₹20b and current liabilities of ₹5.8b. Therefore its current liabilities are equivalent to approximately 30% of its total assets. Low current liabilities are not boosting the ROCE too much.

The Bottom Line On Astral Poly Technik’s ROCE

With that in mind, Astral Poly Technik’s ROCE appears pretty good. But note:

Astral Poly Technik may not be the best stock to buy

. So take a peek at this

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If you like to buy stocks alongside management, then you might just love this

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To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at

[email protected]

.

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