# What Should Investors Know About Atresmedia Corporación de Medios de Comunicación SA’s (BME:A3M) Return On Capital?

This article is intended for those of you who are at the beginning of your investing journey and want a simplistic look at the return on Atresmedia Corporación de Medios de Comunicación SA (BME:A3M) stock.

Purchasing Atresmedia Corporación de Medios de Comunicación gives you an ownership stake in the company. This share represents a portion of capital used by the company to operate the business, and it is important the company is able to use the capital base efficiently to create adequate cash flows for you as an investor. This is because the actual cash flow generated by the business dictates the potential for income (dividends) and capital appreciation (price increases), which are the two ways to achieve positive returns when buying a stock. To understand Atresmedia Corporación de Medios de Comunicación’s capital returns we will look at a useful metric called return on capital employed. This will tell us if the company is growing your capital and placing you in good stead to sell your shares at a profit.

### Atresmedia Corporación de Medios de Comunicación’s Return On Capital Employed

When you choose to invest in a company, there is an opportunity cost because that money could’ve been invested elsewhere. Accordingly, before you invest you need to assess the capital returns that the company has produced with reference to a certain benchmark to ensure that you are confident in the business’ ability to grow your capital at a level that grants an investment over other companies. To determine Atresmedia Corporación de Medios de Comunicación’s capital return we will use ROCE, which tells us how much the company makes from the capital employed in their operations (for things like machinery, wages etc). A3M’s ROCE is calculated below:

ROCE Calculation for A3M

Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)

Capital Employed = (Total Assets – Current Liabilities)

∴ ROCE = €157m ÷ (€1.4b – €531m) = 19%

A3M’s 19% ROCE means that for every €100 you invest, the company creates €19.4. This makes Atresmedia Corporación de Medios de Comunicación satisfactorily profitable when compared to a robust 15% ROCE yardstick. So if this rate continues in to the future and is able to either provide solid dividends or reinvestment opportunities, your capital will enlarge at a favourable rate over time.

### Before moving forward

Atresmedia Corporación de Medios de Comunicación’s relatively strong ROCE is tied to the movement in two factors that change over time: earnings and capital requirements. At the moment Atresmedia Corporación de Medios de Comunicación is in a favourable position, but this can change if these factors underperform. Because of this, it is important to look beyond the final value of A3M’s ROCE and understand what is happening to the individual components. If you go back three years, you’ll find that A3M’s ROCE has decreased from 20%. We can see that earnings have actually increased from €97m to €157m but capital employed has grown by a proportionally greater amount because of a hike in the level of total assets and a smaller reliance on current liabilities (less borrowing to fund operations) , indicating that the previous growth in earnings has not been able to improve ROCE because the company now needs to employ more capital to operate the business.

### Next Steps

ROCE for A3M investors has declined in the last few years, however, the company still remains an attractive candidate that is capable of producing solid capital returns and a potentially strong return on investment. Before making any decisions, ROCE does not tell the whole picture so you need to pay attention to other fundamentals like future prospects and valuation. It’s important to account for these factors because you cannot be sure if the downward path is a signal to run, or just a blip in an otherwise solid return profile. Atresmedia Corporación de Medios de Comunicación’s fundamentals can be explored with the links I’ve provided below if you are interested, otherwise you can start looking at other high-performing stocks.

1. Future Outlook: What are well-informed industry analysts predicting for A3M’s future growth? Take a look at our free research report of analyst consensus for A3M’s outlook.
2. Valuation: What is A3M worth today? Is the stock undervalued, even if its ROCE is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether A3M is currently mispriced by the market.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.