Returns On Capital Are Showing Encouraging Signs At ATON Green Storage (BIT:ATON)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 on that note, ATON Green Storage (BIT:ATON) looks quite promising in regards to its trends of return on capital.

What Is 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. Analysts use this formula to calculate it for ATON Green Storage:

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

0.19 = €3.3m ÷ (€24m - €6.4m) (Based on the trailing twelve months to December 2021).

Therefore, ATON Green Storage has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 12% generated by the Electrical industry.

Check out our latest analysis for ATON Green Storage

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

What The Trend Of ROCE Can Tell Us

We're delighted to see that ATON Green Storage is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses two years ago, but now it's earning 19% which is a sight for sore eyes. Not only that, but the company is utilizing 257% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, ATON Green Storage has decreased current liabilities to 27% 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 ATON Green Storage's ROCE

Overall, ATON Green Storage gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 8.0% return over the last year. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 3 warning signs for ATON Green Storage (1 can't be ignored) you should be aware of.

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.