ACTIA Group (EPA:ALATI) Is Looking To Continue Growing Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at ACTIA Group (EPA:ALATI) so let's look a bit deeper.

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. To calculate this metric for ACTIA Group, this is the formula:

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

0.10 = €29m ÷ (€622m - €335m) (Based on the trailing twelve months to June 2024).

Therefore, ACTIA Group has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 7.1% it's much better.

See our latest analysis for ACTIA Group

Above you can see how the current ROCE for ACTIA Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for ACTIA Group .

So How Is ACTIA Group's ROCE Trending?

ACTIA Group has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 85% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a separate but related note, it's important to know that ACTIA Group has a current liabilities to total assets ratio of 54%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On ACTIA Group's ROCE

To bring it all together, ACTIA Group has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 32% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 5 warning signs we've spotted with ACTIA Group (including 1 which shouldn't be ignored) .

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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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.