How Well Is McCoy Global (TSE:MCB) Allocating Its Capital?

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates the company is producing less profit from its investments and its total assets are decreasing. In light of that, from a first glance at McCoy Global (TSE:MCB), we've spotted some signs that it could be struggling, so let's investigate.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on McCoy Global is:

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

0.0034 = CA$168k ÷ (CA$58m - CA$8.9m) (Based on the trailing twelve months to September 2020).

Thus, McCoy Global has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 7.5%.

View our latest analysis for McCoy Global

Historical performance is a great place to start when researching a stock so above you can see the gauge for McCoy Global's ROCE against it's prior returns. If you're interested in investigating McCoy Global's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is McCoy Global's ROCE Trending?

The trend of returns that McCoy Global is generating are raising some concerns. To be more specific, today's ROCE was 2.6% five years ago but has since fallen to 0.3%. On top of that, the business is utilizing 55% less capital within its operations. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

In Conclusion...

To see McCoy Global reducing the capital employed in the business in tandem with diminishing returns, is concerning. Long term shareholders who've owned the stock over the last five years have experienced a 69% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we've found 4 warning signs for McCoy Global that we think you should be aware of.

While McCoy Global 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.

When trading McCoy Global or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.