Are ATC CARGO S.A.s (WSE:ATA) High Returns Really That Great? – Simply Wall St News
Today we’ll evaluate ATC CARGO S.A. (WSE:ATA) to determine whether it could have potential as an investment idea. Specifically, we’ll consider its Return On Capital Employed (ROCE), since that will give us an insight into how efficiently the business can generate profits from the capital it requires.
First up, we’ll look at what ROCE is and how we calculate it. Second, we’ll look at its ROCE compared to similar companies. And finally, we’ll look at how its current liabilities are impacting its ROCE.
Return On Capital Employed (ROCE): What is it?
ROCE measures the amount of pre-tax profits a company can generate from the capital employed in its business. Generally speaking a higher ROCE is better. Overall, it is a valuable metric that has its flaws. Renowned investment researcher Michael Mauboussin has suggested that a high ROCE can indicate that ‘one dollar invested in the company generates value of more than one dollar’.
So, How Do We Calculate ROCE?
Analysts use this formula to calculate return on capital employed:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
Or for ATC CARGO:
0.10 = z2.8m ÷ (z71m – z44m) (Based on the trailing twelve months to September 2018.)
Therefore, ATC CARGO has an ROCE of 10%.
See our latest analysis for ATC CARGO
Is ATC CARGO’s ROCE Good?
ROCE is commonly used for comparing the performance of similar businesses. In our analysis, ATC CARGO’s ROCE is meaningfully higher than the 5.8....