Returns On Capital Are Showing Encouraging Signs At Actic Group (STO:ATIC)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Actic Group's (STO:ATIC) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

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 Actic Group is:

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

0.065 = kr59m ÷ (kr1.3b - kr400m) (Based on the trailing twelve months to March 2025).

Therefore, Actic Group has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 21%.

Check out our latest analysis for Actic Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Actic Group's ROCE against it's prior returns. If you're interested in investigating Actic Group's past further, check out this free graph covering Actic Group's past earnings, revenue and cash flow.

So How Is Actic Group's ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Actic Group. The figures show that over the last five years, returns on capital have grown by 129%. The company is now earning kr0.06 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 34% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line

From what we've seen above, Actic Group has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a solid 57% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 3 warning signs for Actic Group (2 are significant) you should be aware of.

While Actic Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.