Investors Could Be Concerned With Borges Agricultural & Industrial Nuts' (BME:BAIN) Returns On Capital

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. 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 indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. And from a first read, things don't look too good at Borges Agricultural & Industrial Nuts (BME:BAIN), so let's see why.

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 Borges Agricultural & Industrial Nuts, this is the formula:

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

0.000061 = €6.0k ÷ (€154m - €56m) (Based on the trailing twelve months to May 2022).

Therefore, Borges Agricultural & Industrial Nuts has an ROCE of 0.006%. In absolute terms, that's a low return and it also under-performs the Food industry average of 8.6%.

Check out our latest analysis for Borges Agricultural & Industrial Nuts

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Borges Agricultural & Industrial Nuts, check out these free graphs here.

So How Is Borges Agricultural & Industrial Nuts' ROCE Trending?

We are a bit worried about the trend of returns on capital at Borges Agricultural & Industrial Nuts. To be more specific, the ROCE was 3.5% five years ago, but since then it has dropped noticeably. 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. If these trends continue, we wouldn't expect Borges Agricultural & Industrial Nuts to turn into a multi-bagger.

What We Can Learn From Borges Agricultural & Industrial Nuts' ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 47% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you'd like to know more about Borges Agricultural & Industrial Nuts, we've spotted 4 warning signs, and 1 of them is concerning.

While Borges Agricultural & Industrial Nuts isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.