Atlanta Poland's (WSE:ATP) Returns On Capital Are Heading Higher

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Atlanta Poland (WSE:ATP) looks quite promising in regards to its trends of return on capital.

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

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 Atlanta Poland:

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

0.19 = zł19m ÷ (zł194m - zł95m) (Based on the trailing twelve months to March 2023).

Thus, Atlanta Poland has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 14% generated by the Consumer Retailing industry.

See our latest analysis for Atlanta Poland

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

So How Is Atlanta Poland's ROCE Trending?

Atlanta Poland has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 848% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 49% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line On Atlanta Poland's ROCE

To sum it up, Atlanta Poland 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 Atlanta Poland can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Atlanta Poland, we've spotted 3 warning signs, and 1 of them is potentially serious.

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

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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.