These Return Metrics Don't Make dormakaba Holding (VTX:DOKA) Look Too Strong

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. In light of that, from a first glance at dormakaba Holding (VTX:DOKA), we've spotted some signs that it could be struggling, so let's investigate.

Understanding 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 dormakaba Holding, this is the formula:

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

0.18 = CHF218m ÷ (CHF2.0b - CHF730m) (Based on the trailing twelve months to June 2024).

Therefore, dormakaba Holding has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Building industry average of 16%.

View our latest analysis for dormakaba Holding

In the above chart we have measured dormakaba Holding'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 analyst report for dormakaba Holding .

What Can We Tell From dormakaba Holding's ROCE Trend?

We are a bit worried about the trend of returns on capital at dormakaba Holding. To be more specific, the ROCE was 30% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on dormakaba Holding becoming one if things continue as they have.

What We Can Learn From dormakaba Holding's ROCE

In summary, it's unfortunate that dormakaba Holding is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 15% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One more thing, we've spotted 2 warning signs facing dormakaba Holding that you might find interesting.

While dormakaba 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.