Can Schaffner Holding (VTX:SAHN) Turn Things Around?

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after we looked into Schaffner Holding (VTX:SAHN), the trends above didn't look too great.

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

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 Schaffner Holding is:

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

0.052 = CHF5.0m ÷ (CHF128m - CHF32m) (Based on the trailing twelve months to June 2020).

Therefore, Schaffner Holding has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 12%.

View our latest analysis for Schaffner Holding

Above you can see how the current ROCE for Schaffner Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Schaffner Holding.

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

In terms of Schaffner Holding's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 13% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Schaffner Holding to turn into a multi-bagger.

What We Can Learn From Schaffner Holding's ROCE

In summary, it's unfortunate that Schaffner Holding is generating lower returns from the same amount of capital. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to continue researching Schaffner Holding, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Schaffner 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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