Here's What's Concerning About Advent-AWI Holdings' (CVE:AWI) Returns On Capital

When researching a stock for investment, what can tell us that the company is in decline? 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 combination can tell you that not only is the company investing less, it's earning less on what it does invest. Having said that, after a brief look, Advent-AWI Holdings (CVE:AWI) we aren't filled with optimism, but let's investigate further.

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 Advent-AWI Holdings, this is the formula:

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

0.015 = CA$223k ÷ (CA$17m - CA$2.4m) (Based on the trailing twelve months to December 2022).

Thus, Advent-AWI Holdings has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 16%.

View our latest analysis for Advent-AWI Holdings

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

SWOT Analysis for Advent-AWI Holdings

So How Is Advent-AWI Holdings' ROCE Trending?

We are a bit worried about the trend of returns on capital at Advent-AWI Holdings. Unfortunately the returns on capital have diminished from the 6.2% 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Advent-AWI Holdings 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. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you want to know some of the risks facing Advent-AWI Holdings we've found 5 warning signs (3 are significant!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.