I am writing today to help inform people who are new to the stock market and want a simplistic look at the return on Public Joint Stock Company Acron (MCX:AKRN) stock.
Buying Acron makes you a partial owner of the company. Your equity share is granted in return for the capital provided to the business to operate, and in order for an investment to be successful the business has to create earnings from the funds that make up this capital. You need to pay attention to this because your return on investment is linked to dividends and internal investments to improve the business, which can only occur if the company is expected to produce adequate earnings with the capital that has been provided. Therefore, looking at how efficiently Acron is able to use capital to create earnings will help us understand your potential return. Investors use many different metrics but the analysis below focuses on return on capital employed (ROCE). Let’s take a look at what it can tell us.
Calculating Return On Capital Employed for AKRN
You only have a finite amount of capital to invest, so there are only so many companies that you can add to your portfolio. The cost of missing out on another opportunity comes in the form of the potential long term gain you could’ve received, which is dependent on the gap between the return on capital you could’ve achieved and that of the company you invested in. Hence, capital returns are very important, and should be examined before you invest in conjunction with a certain benchmark that represents the minimum return you require to be compensated for the risk of missing out on other potentially lucrative investments. We’ll look at Acron’s returns by computing return on capital employed, which will tell us what the company can generate from the money spent in operations. Take a look at the formula box beneath:
ROCE Calculation for AKRN
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = RUруб21.97b ÷ (RUруб181.76b – RUруб33.63b) = 14.83%
The calculation above shows that AKRN’s earnings were 14.83% of capital employed. A good ROCE hurdle you should aim for in your investments is 15%, which AKRN has just fallen short of, meaning the company creates an unideal amount of earnings from capital employed.
Why is this the case?
Acron’s relatively poor ROCE is tied to the movement in two factors that change over time: earnings and capital requirements. At the moment Acron is in an adverse position, but this can change if these factors improve. So it is important for investors to understand what is going on under the hood and look at how these variables have been behaving. Three years ago, AKRN’s ROCE was 4.67%, which means the company’s capital returns have improved. With this, the current earnings of RUруб21.97b improved from RUруб7.91b and capital employed has declined because of a decreased level of total assets , which is an indication that Acron has increased the ROCE for investors by producing more earnings and using less capital.
Despite AKRN’s current ROCE remains at an unattractive level, the company has triggered an upward trend over the recent past which could signal an opportunity for a solid return on investment in the long term. But don’t forget, return on capital employed is a static metric that should be looked at in conjunction with other fundamental indicators like future prospects and valuation to determine whether there is potential for return by focusing our attention elsewhere. Acron’s fundamentals can be explored with the links I’ve provided below if you are interested, otherwise you can start looking at other high-performing stocks.
- Future Outlook: What are well-informed industry analysts predicting for AKRN’s future growth? Take a look at our free research report of analyst consensus for AKRN’s outlook.
- Valuation: What is AKRN worth today? Despite the unattractive ROCE, is the outlook correctly factored in to the price? The intrinsic value infographic in our free research report helps visualize whether AKRN is currently undervalued by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.