AT & S Austria Technologie & Systemtechnik's (VIE:ATS) Returns On Capital Are Heading Higher

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at AT & S Austria Technologie & Systemtechnik (VIE:ATS) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for AT & S Austria Technologie & Systemtechnik, this is the formula:

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

0.082 = €261m ÷ (€4.1b - €910m) (Based on the trailing twelve months to December 2022).

So, AT & S Austria Technologie & Systemtechnik has an ROCE of 8.2%. Ultimately, that's a low return and it under-performs the Electronic industry average of 11%.

Check out our latest analysis for AT & S Austria Technologie & Systemtechnik

In the above chart we have measured AT & S Austria Technologie & Systemtechnik's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AT & S Austria Technologie & Systemtechnik.

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 152% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what AT & S Austria Technologie & Systemtechnik has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 56% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about AT & S Austria Technologie & Systemtechnik, we've spotted 4 warning signs, and 1 of them is potentially serious.

While AT & S Austria Technologie & Systemtechnik may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.