Returns At Akritas (ATH:AKRIT) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Akritas (ATH:AKRIT) so let's look a bit deeper.

We've discovered 3 warning signs about Akritas. View them for free.

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. Analysts use this formula to calculate it for Akritas:

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

0.022 = €743k ÷ (€51m - €18m) (Based on the trailing twelve months to June 2024).

Thus, Akritas has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 6.2%.

View 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'd like to look at how Akritas has performed in the past in other metrics, you can view this free graph of Akritas' past earnings, revenue and cash flow.

What Does the ROCE Trend For Akritas Tell Us?

We're delighted to see that Akritas is reaping rewards from its investments and has now broken into profitability. The company now earns 2.2% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

One more thing to note, Akritas has decreased current liabilities to 35% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Akritas has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

To sum it up, Akritas is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

Akritas does have some risks though, and we've spotted 3 warning signs for Akritas that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.