These Return Metrics Don't Make Prosegur Cash (BME:CASH) Look Too Strong

When researching a stock for investment, what can tell us that the company is in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. In light of that, from a first glance at Prosegur Cash (BME:CASH), we've spotted some signs that it could be struggling, so let's investigate.

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 Prosegur Cash, this is the formula:

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

0.19 = €226m ÷ (€1.9b - €730m) (Based on the trailing twelve months to June 2022).

Therefore, Prosegur Cash has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 9.5% it's much better.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

We are a bit worried about the trend of returns on capital at Prosegur Cash. Unfortunately the returns on capital have diminished from the 31% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 Prosegur Cash becoming one if things continue as they have.

The Bottom Line

In summary, it's unfortunate that Prosegur Cash is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 70% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a separate note, we've found 2 warning signs for Prosegur Cash you'll probably want to know about.

While Prosegur Cash may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.