Yahoo Finance Atlas Technical Consultants, Inc. (NASDAQ:ATCX) Might Not Be A Great Investment
Today we'll evaluate Atlas Technical Consultants, Inc. (NASDAQ:ATCX) 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.
Firstly, we'll go over how we calculate ROCE. Next, we'll compare it to others in its industry. Last but not least, we'll look at what impact its current liabilities have on its ROCE.
What is Return On Capital Employed (ROCE)?
ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Generally speaking a higher ROCE is better. Overall, it is a valuable metric that has its flaws. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.
So, How Do We Calculate ROCE?
The formula for calculating the return on capital employed is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Or for Atlas Technical Consultants:
0.061 = US$18m ÷ (US$361m - US$64m) (Based on the trailing twelve months to September 2019.)
So, Atlas Technical Consultants has an ROCE of 6.1%.
View our latest analysis for Atlas Technical Consultants
Is Atlas Technical Consultants's ROCE Good?
ROCE can be useful when making comparisons, such as between similar companies. We can see Atlas Technical Consultants's ROCE is meaningfully below the Construction industry average of 9.4%. This could be seen as a negative, as it suggests some competitors may be employing their capital more efficiently. Separate from how Atlas Technical Consultants stacks up against its industry, its ROCE in absolute terms is mediocre; relative to the returns on government bonds. Readers may find more attractive investment prospects elsewhere.
You can see in the image below how Atlas Technical Consultants's ROCE compares to its industry. Click to see more on past growth.
When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. Future performance is what matters, and you can see analyst predictions in our free report on analyst forecasts for the company.
What Are Current Liabilities, And How Do They Affect Atlas Technical Consultants's ROCE?
Current liabilities are short term bills and invoices that need to be paid in 12 months or less. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To counter this, investors can check if a company has high current liabilities relative to total assets.
Atlas Technical Consultants has total assets of US$361m and current liabilities of US$64m. As a result, its current liabilities are equal to approximately 18% of its total assets. This is a modest level of current liabilities, which would only have a small effect on ROCE.
What We Can Learn From Atlas Technical Consultants's ROCE
That said, Atlas Technical Consultants's ROCE is mediocre, there may be more attractive investments around. Of course, you might also be able to find a better stock than Atlas Technical Consultants. So you may wish to see this free collection of other companies that have grown earnings strongly.
I will like Atlas Technical Consultants better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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This article by Simply Wall St is general in nature. 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. Thank you for reading.
