Why The 39% Return On Capital At ATC CARGO (WSE:ATA) Should Have Your Attention

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at ATC CARGO's (WSE:ATA) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on ATC CARGO is:

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

0.39 = zł25m ÷ (zł104m - zł41m) (Based on the trailing twelve months to September 2023).

Therefore, ATC CARGO has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Shipping industry average of 16%.

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 want to delve into the historical earnings, revenue and cash flow of ATC CARGO, check out these free graphs here.

How Are Returns Trending?

The trends we've noticed at ATC CARGO are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 39%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 127%. 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 40%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

All in all, it's terrific to see that ATC CARGO is reaping the rewards from prior investments and is growing its capital base. And a remarkable 400% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

ATC CARGO does have some risks, we noticed 4 warning signs (and 2 which are a bit concerning) we think you should know about.

ATC CARGO is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.