What These Trends Mean At Bobst Group (VTX:BOBNN)

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. 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. This indicates the company is producing less profit from its investments and its total assets are decreasing. Having said that, after a brief look, Bobst Group (VTX:BOBNN) we aren't filled with optimism, but let's investigate further.

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. Analysts use this formula to calculate it for Bobst Group:

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

0.04 = CHF38m ÷ (CHF1.6b - CHF722m) (Based on the trailing twelve months to June 2020).

Thus, Bobst Group has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 8.1%.

Check out our latest analysis for Bobst Group

In the above chart we have measured Bobst Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Bobst Group.

What Can We Tell From Bobst Group's ROCE Trend?

In terms of Bobst Group's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 8.6%, however they're now substantially lower than that as we saw above. 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 Bobst Group becoming one if things continue as they have.

On a side note, Bobst Group's current liabilities are still rather high at 44% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Bobst Group's ROCE

In summary, it's unfortunate that Bobst Group is generating lower returns from the same amount of capital. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 42% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Bobst Group (of which 1 is a bit unpleasant!) that you should know about.

While Bobst Group 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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