Our Take On The Returns On Capital At Komax Holding (VTX:KOMN)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Komax Holding (VTX:KOMN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Komax Holding is:

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

0.0068 = CHF2.6m ÷ (CHF452m - CHF71m) (Based on the trailing twelve months to June 2020).

So, Komax Holding has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Machinery industry average of 8.1%.

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.

The Trend Of ROCE

When we looked at the ROCE trend at Komax Holding, we didn't gain much confidence. To be more specific, ROCE has fallen from 16% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Key Takeaway

We're a bit apprehensive about Komax Holding because despite more capital being deployed in the business, returns on that capital and sales have both fallen. And long term shareholders have watched their investments stay flat over the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing, we've spotted 1 warning sign facing Komax Holding that you might find interesting.

While Komax 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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