Is Progress-Werk Oberkirch (ETR:PWO) Shrinking?

What financial metrics can indicate to us that a company is maturing or even in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after we looked into Progress-Werk Oberkirch (ETR:PWO), the trends above didn't look too great.

Understanding 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 Progress-Werk Oberkirch, this is the formula:

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

0.01 = €2.4m ÷ (€378m - €141m) (Based on the trailing twelve months to September 2020).

Therefore, Progress-Werk Oberkirch has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 6.2%.

Check out our latest analysis for Progress-Werk Oberkirch

In the above chart we have measured Progress-Werk Oberkirch'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 Does the ROCE Trend For Progress-Werk Oberkirch Tell Us?

In terms of Progress-Werk Oberkirch's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 1.9% 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. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Progress-Werk Oberkirch becoming one if things continue as they have.

The Bottom Line On Progress-Werk Oberkirch's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Long term shareholders who've owned the stock over the last five years have experienced a 11% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you'd like to know more about Progress-Werk Oberkirch, we've spotted 2 warning signs, and 1 of them is a bit concerning.

While Progress-Werk Oberkirch 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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This article by Simply Wall St is general in nature. 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.
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