These Return Metrics Don't Make Atende (WSE:ATD) Look Too Strong

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. 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 Atende (WSE:ATD), so let's see why.

Understanding 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 Atende:

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

0.01 = zł915k ÷ (zł148m - zł59m) (Based on the trailing twelve months to June 2022).

So, Atende has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the IT industry average of 13%.

Our analysis indicates that ATD is potentially undervalued!

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

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Atende. About five years ago, returns on capital were 9.4%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Atende becoming one if things continue as they have.

In Conclusion...

In summary, it's unfortunate that Atende is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 17% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you'd like to know more about Atende, we've spotted 2 warning signs, and 1 of them can't be ignored.

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.