Returns On Capital At Atta Global Group Berhad (KLSE:ATTA) Have Stalled
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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Atta Global Group Berhad (KLSE:ATTA) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Atta Global Group Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.023 = RM9.0m ÷ (RM445m - RM50m) (Based on the trailing twelve months to September 2022).
Therefore, Atta Global Group Berhad has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 11%.
Check out our latest analysis for Atta Global Group Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Atta Global Group Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Atta Global Group Berhad, check out these free graphs here.
What Does the ROCE Trend For Atta Global Group Berhad Tell Us?
There are better returns on capital out there than what we're seeing at Atta Global Group Berhad. The company has consistently earned 2.3% for the last five years, and the capital employed within the business has risen 81% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
What We Can Learn From Atta Global Group Berhad's ROCE
In summary, Atta Global Group Berhad has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 64% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
On a final note, we found 5 warning signs for Atta Global Group Berhad (2 are potentially serious) 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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