Returns On Capital At Atlas Technical Consultants (NASDAQ:ATCX) Paint A Concerning Picture

By
Simply Wall St
Published
February 19, 2022
NasdaqGM:ATCX
Source: Shutterstock

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Atlas Technical Consultants (NASDAQ:ATCX), we don't think it's current trends fit the mold of a multi-bagger.

What is 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 Atlas Technical Consultants is:

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

0.045 = US$16m ÷ (US$420m - US$66m) (Based on the trailing twelve months to October 2021).

Thus, Atlas Technical Consultants has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Professional Services industry average of 11%.

See our latest analysis for Atlas Technical Consultants

roce
NasdaqGM:ATCX Return on Capital Employed February 19th 2022

In the above chart we have measured Atlas Technical Consultants' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Atlas Technical Consultants here for free.

What Does the ROCE Trend For Atlas Technical Consultants Tell Us?

On the surface, the trend of ROCE at Atlas Technical Consultants doesn't inspire confidence. Over the last three years, returns on capital have decreased to 4.5% from 6.1% three years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

While returns have fallen for Atlas Technical Consultants in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These trends are starting to be recognized by investors since the stock has delivered a 14% gain to shareholders who've held over the last three years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

One final note, you should learn about the 3 warning signs we've spotted with Atlas Technical Consultants (including 1 which can't be ignored) .

While Atlas Technical Consultants isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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