We Like These Underlying Return On Capital Trends At Atlas Technical Consultants (NASDAQ:ATCX)
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Atlas Technical Consultants (NASDAQ:ATCX) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Atlas Technical Consultants, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.085 = US$35m ÷ (US$523m - US$108m) (Based on the trailing twelve months to July 2022).
So, Atlas Technical Consultants has an ROCE of 8.5%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 13%.
Check out our latest analysis for Atlas Technical Consultants
Above you can see how the current ROCE for Atlas Technical Consultants compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last four years to 8.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 40% more capital is being employed now too. So we're very much inspired by what we're seeing at Atlas Technical Consultants thanks to its ability to profitably reinvest capital.
The Bottom Line On Atlas Technical Consultants' ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Atlas Technical Consultants has. And since the stock has fallen 34% over the last three years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
On a final note, we found 2 warning signs for Atlas Technical Consultants (1 is concerning) you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
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