The Returns On Capital At SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (HMSE:NEP) Don't Inspire Confidence

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Basically the company is earning less on its investments and it is also reducing its total assets. On that note, looking into SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (HMSE:NEP), we weren't too upbeat about how things were going.

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. To calculate this metric for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft, this is the formula:

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

0.023 = €6.4m ÷ (€313m - €35m) (Based on the trailing twelve months to December 2020).

Therefore, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Shipping industry average of 7.1%.

Check out our latest analysis for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft

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

What Does the ROCE Trend For SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft Tell Us?

We are a bit worried about the trend of returns on capital at SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft. About five years ago, returns on capital were 7.2%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft becoming one if things continue as they have.

Our Take On SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. And long term shareholders have watched their investments stay flat over the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One more thing: We've identified 4 warning signs with SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (at least 2 which don't sit too well with us) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.
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