These Return Metrics Don't Make Zarneni Hrani Bulgaria AD (BUL:ZHBG) Look Too Strong

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. 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. So after we looked into Zarneni Hrani Bulgaria AD (BUL:ZHBG), the trends above didn't look too great.

Understanding 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. To calculate this metric for Zarneni Hrani Bulgaria AD, this is the formula:

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

0.0059 = лв2.2m ÷ (лв414m - лв43m) (Based on the trailing twelve months to December 2023).

Thus, Zarneni Hrani Bulgaria AD has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Food industry average of 10%.

Check out our latest analysis for Zarneni Hrani Bulgaria AD

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Zarneni Hrani Bulgaria AD.

What The Trend Of ROCE Can Tell Us

In terms of Zarneni Hrani Bulgaria AD's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 1.9%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 Zarneni Hrani Bulgaria AD becoming one if things continue as they have.

The Key Takeaway

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 48% from where it was five years ago. 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 Zarneni Hrani Bulgaria AD we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While Zarneni Hrani Bulgaria AD 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.