These Return Metrics Don't Make Tribune Resources (ASX:TBR) Look Too Strong

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after glancing at the trends within Tribune Resources (ASX:TBR), we weren't too hopeful.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Tribune Resources is:

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

0.055 = AU$17m ÷ (AU$322m - AU$8.2m) (Based on the trailing twelve months to December 2022).

So, Tribune Resources has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 11%.

Check out our latest analysis for Tribune Resources

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tribune Resources' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Tribune Resources, check out these free graphs here.

SWOT Analysis for Tribune Resources

What The Trend Of ROCE Can Tell Us

In terms of Tribune Resources' historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 27%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Tribune Resources to turn into a multi-bagger.

In Conclusion...

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 11% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you'd like to know more about Tribune Resources, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.

While Tribune Resources isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.