ATC CARGO (WSE:ATA) Is Very Good At Capital Allocation

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. And in light of that, the trends we're seeing at ATC CARGO's (WSE:ATA) look very promising so lets take a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on ATC CARGO is:

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

0.50 = zł32m ÷ (zł123m - zł59m) (Based on the trailing twelve months to June 2023).

So, ATC CARGO has an ROCE of 50%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

See our latest analysis for ATC CARGO

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

What Can We Tell From ATC CARGO's ROCE Trend?

The trends we've noticed at ATC CARGO are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 50%. The amount of capital employed has increased too, by 156%. So we're very much inspired by what we're seeing at ATC CARGO thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 48%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

In Conclusion...

In summary, it's great to see that ATC CARGO can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 433% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if ATC CARGO can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 3 warning signs with ATC CARGO (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.