Is Duncan Fox (SNSE:DUNCANFOX) Struggling?

What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after we looked into Duncan Fox (SNSE:DUNCANFOX), the trends above didn't look too great.

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. Analysts use this formula to calculate it for Duncan Fox:

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

0.055 = CL$14b ÷ (CL$284b - CL$38b) (Based on the trailing twelve months to September 2020).

Thus, Duncan Fox has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.9%.

See our latest analysis for Duncan Fox

Historical performance is a great place to start when researching a stock so above you can see the gauge for Duncan Fox's ROCE against it's prior returns. If you're interested in investigating Duncan Fox's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Duncan Fox. Unfortunately the returns on capital have diminished from the 9.7% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Duncan Fox becoming one if things continue as they have.

The Bottom Line

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Yet despite these concerning fundamentals, the stock has performed strongly with a 77% return over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

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

While Duncan Fox 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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