Returns On Capital At Prosegur Cash (BME:CASH) Paint A Concerning Picture

What underlying fundamental trends can indicate that a company might be 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. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. On that note, looking into Prosegur Cash (BME:CASH), we weren't too upbeat about how things were going.

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. To calculate this metric for Prosegur Cash, this is the formula:

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

0.15 = €158m ÷ (€1.7b - €636m) (Based on the trailing twelve months to March 2021).

Thus, Prosegur Cash has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Commercial Services industry.

View our latest analysis for Prosegur Cash

Above you can see how the current ROCE for Prosegur Cash compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Prosegur Cash.

What Can We Tell From Prosegur Cash's ROCE Trend?

We are a bit worried about the trend of returns on capital at Prosegur Cash. Unfortunately the returns on capital have diminished from the 28% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 Prosegur Cash becoming one if things continue as they have.

What We Can Learn From Prosegur Cash's ROCE

In summary, it's unfortunate that Prosegur Cash is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 64% over the last three years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we've found 3 warning signs for Prosegur Cash that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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