Weng Fine Art (FRA:WFA) Will Be Hoping To Turn Its Returns On Capital Around

What underlying fundamental trends can indicate that a company might be in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Weng Fine Art (FRA:WFA), we weren't too hopeful.

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Return On Capital Employed (ROCE): What Is It?

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 Weng Fine Art is:

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

0.015 = €309k ÷ (€32m - €10m) (Based on the trailing twelve months to June 2024).

Thus, Weng Fine Art has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 9.4%.

Check out our latest analysis for Weng Fine Art

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

So How Is Weng Fine Art's ROCE Trending?

In terms of Weng Fine Art's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 9.3% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 Weng Fine Art becoming one if things continue as they have.

Our Take On Weng Fine Art's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. In spite of that, the stock has delivered a 29% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Weng Fine Art does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those are a bit unpleasant...

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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.