Investors Could Be Concerned With S.T. Dupont's (EPA:DPT) Returns On Capital

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? 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 reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. And from a first read, things don't look too good at S.T. Dupont (EPA:DPT), so let's see why.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on S.T. Dupont is:

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

0.0096 = €320k ÷ (€55m - €22m) (Based on the trailing twelve months to March 2024).

So, S.T. Dupont has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 15%.

Check out our latest analysis for S.T. Dupont

Historical performance is a great place to start when researching a stock so above you can see the gauge for S.T. Dupont's ROCE against it's prior returns. If you're interested in investigating S.T. Dupont's past further, check out this free graph covering S.T. Dupont's past earnings, revenue and cash flow.

What Does the ROCE Trend For S.T. Dupont Tell Us?

We aren't inspired by the trend, given ROCE has reduced by 83% over the last five years and S.T. Dupont is applying -24% less capital in the business, even after the capital raising they conducted (prior to their latest reported figures).

What We Can Learn From S.T. Dupont's ROCE

To see S.T. Dupont reducing the capital employed in the business in tandem with diminishing returns, is concerning. Investors haven't taken kindly to these developments, since the stock has declined 33% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

S.T. Dupont does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.

While S.T. Dupont 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.