Be Wary Of AGRANA Beteiligungs-Aktiengesellschaft (VIE:AGR) And Its Returns On Capital

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? 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. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. And from a first read, things don't look too good at AGRANA Beteiligungs-Aktiengesellschaft (VIE:AGR), so let's see why.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on AGRANA Beteiligungs-Aktiengesellschaft is:

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

0.021 = €36m ÷ (€2.7b - €931m) (Based on the trailing twelve months to August 2022).

Thus, AGRANA Beteiligungs-Aktiengesellschaft has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Food industry average of 8.5%.

See our latest analysis for AGRANA Beteiligungs-Aktiengesellschaft

Above you can see how the current ROCE for AGRANA Beteiligungs-Aktiengesellschaft 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 report on analyst forecasts for the company.

What Can We Tell From AGRANA Beteiligungs-Aktiengesellschaft's ROCE Trend?

We are a bit worried about the trend of returns on capital at AGRANA Beteiligungs-Aktiengesellschaft. To be more specific, the ROCE was 10% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect AGRANA Beteiligungs-Aktiengesellschaft to turn into a multi-bagger.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 35%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 2.1%. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

What We Can Learn From AGRANA Beteiligungs-Aktiengesellschaft's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. It should come as no surprise then that the stock has fallen 27% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

AGRANA Beteiligungs-Aktiengesellschaft does have some risks though, and we've spotted 2 warning signs for AGRANA Beteiligungs-Aktiengesellschaft that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.