Akritas (ATH:AKRIT) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at Akritas (ATH:AKRIT) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Akritas is:

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

0.047 = €1.6m ÷ (€54m - €20m) (Based on the trailing twelve months to June 2023).

Thus, Akritas has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 12%.

Check out our latest analysis for Akritas

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

What Can We Tell From Akritas' ROCE Trend?

We're delighted to see that Akritas is reaping rewards from its investments and has now broken into profitability. The company now earns 4.7% on its capital, because four years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

One more thing to note, Akritas has decreased current liabilities to 36% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Akritas' ROCE

In summary, we're delighted to see that Akritas has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 317% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Akritas can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Akritas we've found 4 warning signs (3 are a bit unpleasant!) that you should be aware of before investing here.

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.