Did you know that there are several financial metrics that can provide clues to a potential multibagger? One common approach is to look at companies whose return on capital employed (ROCE) is increasing as their capital employed increases. is to look for. Simply put, this type of business is a compound interest machine, meaning you are continually reinvesting your earnings at an ever-higher rate of return. Speaking of which, we’ve noticed some big changes to Atul Lifestyle Holdings’ (NASDAQ:ATAT) return on equity, so let’s take a look.
What is return on capital employed (ROCE)?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (return) on the capital employed in the business. Analysts use the following formula to calculate Atul Lifestyle Holdings’s profit.
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.27 = CAD 1.3 billion ÷ (CAD 7.3 billion – CAD 2.5 billion) (Based on trailing twelve months to June 2024).
Therefore, Atul Lifestyle Holdings’ ROCE is 27%. That’s an impressive return, and not only that, but it’s higher than the average 10% earned by companies in similar industries.
Check out our latest analysis for Atul Lifestyle Holdings.
Above you can see how Atour Lifestyle Holdings’ current ROCE compares to its previous return on capital, but history can only tell us so much. If you wish, you can take a look at the forecasts made by the analysts covering Atour Lifestyle Holdings for free.
What can we learn from Atour Lifestyle Holdings’ ROCE trend?
The trends we’ve noticed in Atul Lifestyle Holdings are very encouraging. Over the past four years, the return on capital employed has increased significantly to 27%. The amount of capital employed also increased by 361%. This could indicate that there are plenty of opportunities inside to invest capital at ever-higher interest rates, and this combination is common among multibaggers.
The conclusion is…
Overall, it’s great to see Atul Lifestyle Holdings reaping benefits from previous investments and growing its capital base. And with a significant 55% giveaway to those who held shares last year, it’s safe to say these trends are starting to get the attention they deserve. That said, we still think promising fundamentals mean the company requires further due diligence.
If you’re curious about the risks facing Atul Lifestyle Holdings, we’ve spotted 2 warning signs you should be aware of.
A high rate of return is a key ingredient to strong business performance, so take a look at this free list of stocks with strong balance sheets and high return 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 using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
