If you envision a mature business that is past the growth stage, what are the underlying trends that emerge? Declining businesses often have two underlying trends, first, a decline return on capital employed (ROCE) and a decrease based capital employed. This indicates that the company is making less profit from its investments and that its total assets are decreasing. And from the first reading, things don’t look very good Brodogradilist Viktor Lenac dd (ZGSE: VLEN), so let’s see why.
What is Return on Employee Capital (ROCE)?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. To calculate this metric for Brodogradilist Viktor Lenac dd, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.058 = Kn18m (Kn386m – Kn66m) (Based on the last twelve months up to March 2021).
So, Brodogradilist Viktor Lenac dd has a ROCE of 5.8%. In the end, that’s a low yield and it’s below the machinery industry average of 8.7%.
Check out our latest analysis for Brodogradilist Viktor Lenac dd
Historical performance is a great place to start when looking for a stock. So above you can see the ROCE gauge of Brodogradilist Viktor Lenac dd compared to his previous yields. If you would like to examine the performance of Brodogradilist Viktor Lenac dd in the past in other metrics, you can check out this free graph of past income, income and cash flow.
So, what is the trend of the ROCE of the brodogradilist Viktor Lenac dd?
As for the historic ROCE movements of Brodogradilist Viktor Lenac dd, the trend does not inspire confidence. Unfortunately, returns on capital have fallen from the 12% they earned five years ago. And on the capital employed front, the company is using roughly the same amount of capital as it was back in the day. This combination may be indicative of a mature business that still has areas to deploy capital, but the returns received are not as high potentially due to new competition or lower margins. So, because these trends are generally not conducive to building a multi-bagger, we won’t hold our breath on brodogradilist Viktor Lenac to become one if things continue the way they did.
Our opinion on the ROCE of the brodogradilist Viktor Lenac dd
In summary, it is unfortunate that brodogradilist Viktor Lenac dd generates lower returns from the same amount of capital. However, the stock has generated a 73% return for shareholders over the past five years, so investors might expect the trends to reverse. Either way, the current underlying trends do not bode well for long term performance, so unless they reverse we would start looking elsewhere.
If you want to know the risks of Brodogradilist Viktor Lenac dd, we have discovered 3 warning signs that you need to be aware of.
If you want to look for solid businesses with great income, check out this free list of companies with good balance sheets and impressive returns on equity.
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