Atomenergoremont's (BUL:ATOM) Returns On Capital Not Reflecting Well On The Business

By
Simply Wall St
Published
February 23, 2022
BUL:ATOM
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Atomenergoremont (BUL:ATOM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. Analysts use this formula to calculate it for Atomenergoremont:

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

0.057 = лв13m ÷ (лв241m - лв20m) (Based on the trailing twelve months to December 2021).

Therefore, Atomenergoremont has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 11%.

Check out our latest analysis for Atomenergoremont

roce
BUL:ATOM Return on Capital Employed February 23rd 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for Atomenergoremont's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Atomenergoremont, check out these free graphs here.

How Are Returns Trending?

In terms of Atomenergoremont's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 22% over the last five years. 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. If these investments prove successful, this can bode very well for long term stock performance.

In Conclusion...

While returns have fallen for Atomenergoremont in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. Furthermore the stock has climbed 67% over the last three years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you'd like to know more about Atomenergoremont, we've spotted 2 warning signs, and 1 of them can't be ignored.

While Atomenergoremont 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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