Are Investors Concerned With What's Going On At Starrag Group Holding (VTX:STGN)?

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. And from a first read, things don't look too good at Starrag Group Holding (VTX:STGN), so let's see why.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Starrag Group Holding is:

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

0.027 = CHF5.2m ÷ (CHF317m - CHF121m) (Based on the trailing twelve months to June 2020).

So, Starrag Group Holding has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 8.1%.

View our latest analysis for Starrag Group Holding

In the above chart we have measured Starrag Group Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Starrag Group Holding here for free.

What Does the ROCE Trend For Starrag Group Holding Tell Us?

We are a bit worried about the trend of returns on capital at Starrag Group Holding. Unfortunately the returns on capital have diminished from the 8.1% that they were earning five years ago. 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 Starrag Group Holding becoming one if things continue as they have.

Our Take On Starrag Group Holding's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing to note, we've identified 2 warning signs with Starrag Group Holding and understanding these should be part of your investment process.

While Starrag Group 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. 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.
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