The Returns On Capital At Proximus (EBR:PROX) Don't Inspire Confidence

What financial metrics can indicate to us that a company is maturing or even in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base 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 Proximus (EBR:PROX), we weren't too upbeat about how things were going.

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. To calculate this metric for Proximus, this is the formula:

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

0.082 = €613m ÷ (€11b - €3.2b) (Based on the trailing twelve months to September 2023).

Thus, Proximus has an ROCE of 8.2%. In absolute terms, that's a low return but it's around the Telecom industry average of 8.7%.

View our latest analysis for Proximus

Above you can see how the current ROCE for Proximus compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Proximus here for free.

What Does the ROCE Trend For Proximus Tell Us?

In terms of Proximus' historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 12% that they were earning five years ago. 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 Proximus to turn into a multi-bagger.

The Bottom Line

In summary, it's unfortunate that Proximus is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 45% 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.

If you want to know some of the risks facing Proximus we've found 3 warning signs (2 shouldn't be ignored!) that you should be aware of before investing here.

While Proximus may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.