Investors Could Be Concerned With AS Ekspress Grupp's (TAL:EEG1T) Returns On Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? 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. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after we looked into AS Ekspress Grupp (TAL:EEG1T), the trends above didn't look too great.

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 AS Ekspress Grupp, this is the formula:

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

0.041 = €3.1m ÷ (€94m - €19m) (Based on the trailing twelve months to December 2020).

So, AS Ekspress Grupp has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Media industry average of 8.8%.

Check out our latest analysis for AS Ekspress Grupp

In the above chart we have measured AS Ekspress Grupp's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AS Ekspress Grupp.

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at AS Ekspress Grupp. About five years ago, returns on capital were 6.1%, 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 five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on AS Ekspress Grupp becoming one if things continue as they have.

The Bottom Line On AS Ekspress Grupp'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 18% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you'd like to know more about AS Ekspress Grupp, we've spotted 3 warning signs, and 1 of them can't be ignored.

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