Here's What We Make Of ATM Grupa's (WSE:ATG) Returns On Capital

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. And from a first read, things don't look too good at ATM Grupa (WSE:ATG), so let's see why.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for ATM Grupa:

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

0.054 = zł16m ÷ (zł361m - zł61m) (Based on the trailing twelve months to September 2020).

Thus, ATM Grupa has an ROCE of 5.4%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 19%.

View our latest analysis for ATM Grupa

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

So How Is ATM Grupa's ROCE Trending?

In terms of ATM Grupa's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 7.0% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on ATM Grupa becoming one if things continue as they have.

The Key Takeaway

In summary, it's unfortunate that ATM Grupa is generating lower returns from the same amount of capital. Despite the concerning underlying trends, the stock has actually gained 36% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

ATM Grupa does have some risks though, and we've spotted 3 warning signs for ATM Grupa that you might be interested in.

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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