Some Investors May Be Worried About Atlantic Grupa d.d's (ZGSE:ATGR) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Atlantic Grupa d.d (ZGSE:ATGR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Atlantic Grupa d.d:

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

0.052 = €30m ÷ (€871m - €286m) (Based on the trailing twelve months to June 2023).

So, Atlantic Grupa d.d has an ROCE of 5.2%. Even though it's in line with the industry average of 5.1%, it's still a low return by itself.

Check out our latest analysis for Atlantic Grupa d.d

Above you can see how the current ROCE for Atlantic Grupa d.d 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 report for Atlantic Grupa d.d.

What Can We Tell From Atlantic Grupa d.d's ROCE Trend?

When we looked at the ROCE trend at Atlantic Grupa d.d, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.2% from 11% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Atlantic Grupa d.d. Furthermore the stock has climbed 93% over the last five years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

One more thing to note, we've identified 1 warning sign with Atlantic Grupa d.d and understanding it should be part of your investment process.

While Atlantic Grupa d.d 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. 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.