Returns Are Gaining Momentum At AtkinsRéalis Group (TSE:ATRL)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at AtkinsRéalis Group (TSE:ATRL) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on AtkinsRéalis Group is:

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

0.088 = CA$538m ÷ (CA$10b - CA$4.3b) (Based on the trailing twelve months to June 2024).

Thus, AtkinsRéalis Group has an ROCE of 8.8%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 11%.

View our latest analysis for AtkinsRéalis Group

In the above chart we have measured AtkinsRéalis Group'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 AtkinsRéalis Group for free.

What Does the ROCE Trend For AtkinsRéalis Group Tell Us?

AtkinsRéalis Group has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 8.8% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by AtkinsRéalis Group has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 41%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

Our Take On AtkinsRéalis Group's ROCE

As discussed above, AtkinsRéalis Group appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 145% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if AtkinsRéalis Group can keep these trends up, it could have a bright future ahead.

If you want to continue researching AtkinsRéalis Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

While AtkinsRéalis Group 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.