We Like These Underlying Return On Capital Trends At Arctic Paper (WSE:ATC)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Arctic Paper (WSE:ATC) so let's look a bit deeper.

What Is 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 Arctic Paper:

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

0.18 = zł339m ÷ (zł2.6b - zł716m) (Based on the trailing twelve months to March 2022).

Thus, Arctic Paper has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Forestry industry average of 16%.

See our latest analysis for Arctic Paper

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

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Arctic Paper. The data shows that returns on capital have increased substantially over the last five years to 18%. The amount of capital employed has increased too, by 63%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Arctic Paper has. Since the stock has returned a staggering 366% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Arctic Paper looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ATC is currently trading for a fair price.

While Arctic Paper 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.