Some Investors May Be Worried About Autoneum Holding's (VTX:AUTN) Returns On Capital

What underlying fundamental trends can indicate that a company might be in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into Autoneum Holding (VTX:AUTN), we weren't too upbeat about how things were going.

What Is 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. The formula for this calculation on Autoneum Holding is:

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

0.02 = CHF23m ÷ (CHF1.7b - CHF508m) (Based on the trailing twelve months to December 2023).

Thus, Autoneum Holding has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 8.3%.

Check out our latest analysis for Autoneum Holding

Above you can see how the current ROCE for Autoneum Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Autoneum Holding for free.

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Autoneum Holding. About five years ago, returns on capital were 6.2%, however they're now substantially lower than that as we saw above. 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 Autoneum Holding to turn into a multi-bagger.

Our Take On Autoneum Holding's ROCE

In summary, it's unfortunate that Autoneum Holding is generating lower returns from the same amount of capital. Despite the concerning underlying trends, the stock has actually gained 30% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you want to continue researching Autoneum Holding, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Autoneum Holding 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.

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

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.