Returns On Capital At Warimpex Finanz- und Beteiligungs (VIE:WXF) Paint A Concerning Picture

What financial metrics can indicate to us that a company is maturing or even in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. And from a first read, things don't look too good at Warimpex Finanz- und Beteiligungs (VIE:WXF), so let's see why.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Warimpex Finanz- und Beteiligungs:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.087 = €19m ÷ (€319m - €100m) (Based on the trailing twelve months to September 2024).

Thus, Warimpex Finanz- und Beteiligungs has an ROCE of 8.7%. In absolute terms, that's a low return but it's around the Hospitality industry average of 7.8%.

See our latest analysis for Warimpex Finanz- und Beteiligungs

Above you can see how the current ROCE for Warimpex Finanz- und Beteiligungs compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Warimpex Finanz- und Beteiligungs .

The Trend Of ROCE

We are a bit anxious about the trends of ROCE at Warimpex Finanz- und Beteiligungs. Unfortunately, returns have declined substantially over the last five years to the 8.7% we see today. What's equally concerning is that the amount of capital deployed in the business has shrunk by 31% over that same period. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

On a side note, Warimpex Finanz- und Beteiligungs' current liabilities have increased over the last five years to 31% of total assets, effectively distorting the ROCE to some degree. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

The Bottom Line

To see Warimpex Finanz- und Beteiligungs reducing the capital employed in the business in tandem with diminishing returns, is concerning. Investors haven't taken kindly to these developments, since the stock has declined 64% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we found 3 warning signs for Warimpex Finanz- und Beteiligungs (2 are a bit concerning) 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.