The Return Trends At Atlantska Plovidba d.d (ZGSE:ATPL) Look Promising

What are the early trends we should look for to identify a stock that could 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. 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 Atlantska Plovidba d.d (ZGSE:ATPL) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Atlantska Plovidba d.d is:

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

0.14 = Kn237m ÷ (Kn1.9b - Kn130m) (Based on the trailing twelve months to March 2022).

So, Atlantska Plovidba d.d has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Shipping industry average of 11% it's much better.

See our latest analysis for Atlantska Plovidba d.d

Historical performance is a great place to start when researching a stock so above you can see the gauge for Atlantska Plovidba d.d's ROCE against it's prior returns. If you're interested in investigating Atlantska Plovidba d.d's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Atlantska Plovidba d.d is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 14% on its capital. And unsurprisingly, like most companies trying to break into the black, Atlantska Plovidba d.d is utilizing 21% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 6.9%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Atlantska Plovidba d.d's ROCE

Long story short, we're delighted to see that Atlantska Plovidba d.d's reinvestment activities have paid off and the company is now profitable. Considering the stock has delivered 19% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Like most companies, Atlantska Plovidba d.d does come with some risks, and we've found 2 warning signs that you should be aware of.

While Atlantska Plovidba d.d isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.