Returns On Capital Signal Tricky Times Ahead For AT & S Austria Technologie & Systemtechnik (VIE:ATS)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after investigating AT & S Austria Technologie & Systemtechnik (VIE:ATS), we don't think it's current trends fit the mold of a multi-bagger.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on AT & S Austria Technologie & Systemtechnik is:

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

0.047 = €90m ÷ (€2.4b - €475m) (Based on the trailing twelve months to March 2021).

So, AT & S Austria Technologie & Systemtechnik has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Electronic industry average of 12%.

View 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, you can check out the forecasts from the analysts covering AT & S Austria Technologie & Systemtechnik here for free.

So How Is AT & S Austria Technologie & Systemtechnik's ROCE Trending?

In terms of AT & S Austria Technologie & Systemtechnik's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 8.1%, but since then they've fallen to 4.7%. 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

In summary, despite lower returns in the short term, we're encouraged to see that AT & S Austria Technologie & Systemtechnik is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 280% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

Like most companies, AT & S Austria Technologie & Systemtechnik does come with some risks, and we've found 2 warning signs that you should be aware of.

While AT & S Austria Technologie & Systemtechnik 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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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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