The Returns On Capital At Bike24 Holding (FRA:BIKE) Don't Inspire Confidence

When researching a stock for investment, what can tell us that the company is in decline? 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. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within Bike24 Holding (FRA:BIKE), we weren't too hopeful.

What Is 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. Analysts use this formula to calculate it for Bike24 Holding:

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

0.00081 = €254k ÷ (€353m - €39m) (Based on the trailing twelve months to June 2022).

Thus, Bike24 Holding has an ROCE of 0.08%. In absolute terms, that's a low return and it also under-performs the Online Retail industry average of 8.2%.

Check out our latest analysis for Bike24 Holding

In the above chart we have measured Bike24 Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Bike24 Holding here for free.

How Are Returns Trending?

In terms of Bike24 Holding's historical ROCE movements, the trend doesn't inspire confidence. About two years ago, returns on capital were 0.8%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 two years. If these trends continue, we wouldn't expect Bike24 Holding to turn into a multi-bagger.

The Bottom Line

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. We expect this has contributed to the stock plummeting 85% during the last year. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Like most companies, Bike24 Holding does come with some risks, and we've found 1 warning sign that you should be aware of.

While Bike24 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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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.