Will The ROCE Trend At Athens Water Supply and Sewerage (ATH:EYDAP) Continue?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Athens Water Supply and Sewerage (ATH:EYDAP) 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. Analysts use this formula to calculate it for Athens Water Supply and Sewerage:

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

0.054 = €80m ÷ (€1.6b - €104m) (Based on the trailing twelve months to June 2020).

Therefore, Athens Water Supply and Sewerage has an ROCE of 5.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.3%.

See our latest analysis for Athens Water Supply and Sewerage

Historical performance is a great place to start when researching a stock so above you can see the gauge for Athens Water Supply and Sewerage's ROCE against it's prior returns. If you'd like to look at how Athens Water Supply and Sewerage has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Athens Water Supply and Sewerage's ROCE Trend?

Athens Water Supply and Sewerage has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 38% in that same time. 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.

The Bottom Line

As discussed above, Athens Water Supply and Sewerage appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 116% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Athens Water Supply and Sewerage does come with some risks, and we've found 2 warning signs that you should be aware of.

While Athens Water Supply and Sewerage 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. 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.
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