Brouwerij Handelsmaatschappij (EBR:COBH) Is Finding It Tricky To Allocate Its Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. On that note, looking into Brouwerij Handelsmaatschappij (EBR:COBH), we weren't too upbeat about how things were going.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Brouwerij Handelsmaatschappij:

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

0.06 = €7.6m ÷ (€164m - €38m) (Based on the trailing twelve months to June 2022).

Therefore, Brouwerij Handelsmaatschappij has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 9.6%.

Check out the opportunities and risks within the XX Beverage industry.

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

What Can We Tell From Brouwerij Handelsmaatschappij's ROCE Trend?

There is reason to be cautious about Brouwerij Handelsmaatschappij, given the returns are trending downwards. About five years ago, returns on capital were 8.0%, 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Brouwerij Handelsmaatschappij becoming one if things continue as they have.

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 23% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a separate note, we've found 2 warning signs for Brouwerij Handelsmaatschappij you'll probably want to know about.

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.