Alkis H. Hadjikyriacos (Frou Frou Biscuits) (CSE:FBI) Has Some Difficulty Using Its Capital Effectively

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? 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 reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. In light of that, from a first glance at Alkis H. Hadjikyriacos (Frou Frou Biscuits) (CSE:FBI), we've spotted some signs that it could be struggling, so let's investigate.

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 Alkis H. Hadjikyriacos (Frou Frou Biscuits) is:

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

0.018 = €1.3m ÷ (€85m - €11m) (Based on the trailing twelve months to June 2023).

Thus, Alkis H. Hadjikyriacos (Frou Frou Biscuits) has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Food industry average of 9.5%.

View our latest analysis for Alkis H. Hadjikyriacos (Frou Frou Biscuits)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Alkis H. Hadjikyriacos (Frou Frou Biscuits)'s ROCE against it's prior returns. If you'd like to look at how Alkis H. Hadjikyriacos (Frou Frou Biscuits) has performed in the past in other metrics, you can view this free graph of Alkis H. Hadjikyriacos (Frou Frou Biscuits)'s past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There is reason to be cautious about Alkis H. Hadjikyriacos (Frou Frou Biscuits), given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 4.1% 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. If these trends continue, we wouldn't expect Alkis H. Hadjikyriacos (Frou Frou Biscuits) to turn into a multi-bagger.

Our Take On Alkis H. Hadjikyriacos (Frou Frou Biscuits)'s ROCE

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 49% 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 identified 2 warning signs with Alkis H. Hadjikyriacos (Frou Frou Biscuits) (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

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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.