International Meal Company Alimentação (BVMF:MEAL3) Will Be Hoping To Turn Its Returns On Capital Around

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 indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into International Meal Company Alimentação (BVMF:MEAL3), we weren't too upbeat about how things were going.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for International Meal Company Alimentação, this is the formula:

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

0.0024 = R$5.3m ÷ (R$2.8b - R$625m) (Based on the trailing twelve months to December 2024).

So, International Meal Company Alimentação has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 8.1%.

View our latest analysis for International Meal Company Alimentação

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'd like to look at how International Meal Company Alimentação has performed in the past in other metrics, you can view this free graph of International Meal Company Alimentação's past earnings, revenue and cash flow.

The Trend Of ROCE

There is reason to be cautious about International Meal Company Alimentação, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 3.2% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 International Meal Company Alimentação to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that International Meal Company Alimentação is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 47% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we've found 2 warning signs for International Meal Company Alimentação that we think you should be aware of.

While International Meal Company Alimentação 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.