Here's What's Concerning About Komax Holding's (VTX:KOMN) Returns On Capital

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. On that note, looking into Komax Holding (VTX:KOMN), we weren't too upbeat about how things were going.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Komax Holding is:

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

0.082 = CHF31m ÷ (CHF469m - CHF88m) (Based on the trailing twelve months to June 2021).

Thus, Komax Holding has an ROCE of 8.2%. In absolute terms, that's a low return but it's around the Machinery industry average of 9.9%.

See our latest analysis for Komax Holding

Above you can see how the current ROCE for Komax 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 Komax Holding here for free.

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

In terms of Komax Holding's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 16% 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. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Komax Holding becoming one if things continue as they have.

The Bottom Line On Komax Holding's ROCE

In summary, it's unfortunate that Komax Holding is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 16% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

Komax Holding could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Komax 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.

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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.