We're Watching These Trends At AT & S Austria Technologie & Systemtechnik (VIE:ATS)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. In light of that, when we looked at AT & S Austria Technologie & Systemtechnik (VIE:ATS) and its ROCE trend, we weren't exactly thrilled.

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

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. Analysts use this formula to calculate it for AT & S Austria Technologie & Systemtechnik:

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

0.029 = €46m ÷ (€2.0b - €435m) (Based on the trailing twelve months to December 2020).

So, AT & S Austria Technologie & Systemtechnik has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 10%.

View our latest analysis for AT & S Austria Technologie & Systemtechnik

Above you can see how the current ROCE for AT & S Austria Technologie & Systemtechnik compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering AT & S Austria Technologie & Systemtechnik here for free.

The Trend Of ROCE

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 9.1%, but since then they've fallen to 2.9%. 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.

What We Can Learn From AT & S Austria Technologie & Systemtechnik's ROCE

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 the stock has done incredibly well with a 178% return over the last five years, so long term investors are no doubt ecstatic with that result. So should these growth trends continue, we'd be optimistic on the stock going forward.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for AT & S Austria Technologie & Systemtechnik (of which 1 is potentially serious!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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