Robit Oyj (HEL:ROBIT) Could Be Struggling To Allocate Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Robit Oyj (HEL:ROBIT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Robit Oyj:

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

0.0037 = €270k ÷ (€104m - €31m) (Based on the trailing twelve months to December 2020).

Thus, Robit Oyj has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 8.8%.

Check out our latest analysis for Robit Oyj

In the above chart we have measured Robit Oyj'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 Robit Oyj.

So How Is Robit Oyj's ROCE Trending?

On the surface, the trend of ROCE at Robit Oyj doesn't inspire confidence. Around five years ago the returns on capital were 6.0%, but since then they've fallen to 0.4%. However it looks like Robit Oyj might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 30%, which has impacted the ROCE. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

Our Take On Robit Oyj's ROCE

To conclude, we've found that Robit Oyj is reinvesting in the business, but returns have been falling. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Like most companies, Robit Oyj does come with some risks, and we've found 1 warning sign that you should be aware of.

While Robit Oyj 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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