Here's What To Make Of Starrag Group Holding's (VTX:STGN) Decelerating Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Starrag Group Holding (VTX:STGN), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Starrag Group Holding, this is the formula:

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

0.079 = CHF15m ÷ (CHF359m - CHF169m) (Based on the trailing twelve months to June 2023).

So, Starrag Group Holding has an ROCE of 7.9%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 15%.

See 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Over the past five years, Starrag Group Holding's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Starrag Group Holding to be a multi-bagger going forward.

On a separate but related note, it's important to know that Starrag Group Holding has a current liabilities to total assets ratio of 47%, which we'd consider pretty high. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

In a nutshell, Starrag Group Holding has been trudging along with the same returns from the same amount of capital over the last five years. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Starrag Group Holding does have some risks though, and we've spotted 3 warning signs for Starrag Group Holding that you might be interested in.

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. 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.