Flughafen Zürich's (VTX:FHZN) Returns On Capital Not Reflecting Well On The Business

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. Basically the company is earning less on its investments and it is also reducing its total assets. Having said that, after a brief look, Flughafen Zürich (VTX:FHZN) we aren't filled with optimism, but let's investigate further.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Flughafen Zürich:

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

0.058 = CHF264m ÷ (CHF5.2b - CHF661m) (Based on the trailing twelve months to December 2022).

So, Flughafen Zürich has an ROCE of 5.8%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 7.9%.

View our latest analysis for Flughafen Zürich

Above you can see how the current ROCE for Flughafen Zürich 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 Flughafen Zürich.

SWOT Analysis for Flughafen Zürich

What Does the ROCE Trend For Flughafen Zürich Tell Us?

We are a bit worried about the trend of returns on capital at Flughafen Zürich. About five years ago, returns on capital were 8.3%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 Flughafen Zürich becoming one if things continue as they have.

Our Take On Flughafen Zürich's ROCE

In summary, it's unfortunate that Flughafen Zürich is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 13% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you're still interested in Flughafen Zürich it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.