Returns On Capital Signal Tricky Times Ahead For Autoneum Holding (VTX:AUTN)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Autoneum Holding (VTX:AUTN), it didn't seem to tick all of these boxes.

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

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 Autoneum Holding, this is the formula:

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

0.067 = CHF72m ÷ (CHF1.6b - CHF513m) (Based on the trailing twelve months to June 2021).

Therefore, Autoneum Holding has an ROCE of 6.7%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 9.5%.

View our latest analysis for Autoneum Holding

In the above chart we have measured Autoneum Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Autoneum Holding here for free.

How Are Returns Trending?

In terms of Autoneum Holding's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.7% from 21% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Autoneum Holding's ROCE

Bringing it all together, while we're somewhat encouraged by Autoneum Holding's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 36% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know about the risks facing Autoneum Holding, we've discovered 2 warning signs that you should be aware of.

While Autoneum Holding isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.