Returns On Capital At Figeac Aero Société Anonyme (EPA:FGA) Paint A Concerning Picture

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? 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. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. Having said that, after a brief look, Figeac Aero Société Anonyme (EPA:FGA) we aren't filled with optimism, but let's investigate further.

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. Analysts use this formula to calculate it for Figeac Aero Société Anonyme:

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

0.0071 = €3.0m ÷ (€664m - €241m) (Based on the trailing twelve months to September 2023).

Therefore, Figeac Aero Société Anonyme has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Aerospace & Defense industry average of 9.2%.

Check out our latest analysis for Figeac Aero Société Anonyme

In the above chart we have measured Figeac Aero Société Anonyme's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Figeac Aero Société Anonyme .

How Are Returns Trending?

In terms of Figeac Aero Société Anonyme's historical ROCE trend, it isn't fantastic. Unfortunately, returns have declined substantially over the last five years to the 0.7% we see today. In addition to that, Figeac Aero Société Anonyme is now employing 27% less capital than it was five years ago. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. If these underlying trends continue, we wouldn't be too optimistic going forward.

The Bottom Line

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Investors haven't taken kindly to these developments, since the stock has declined 53% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you're still interested in Figeac Aero Société Anonyme it's worth checking out our FREE intrinsic value approximation for FGA to see if it's trading at an attractive price in other respects.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.