The Returns On Capital At Marie Brizard Wine & Spirits (EPA:MBWS) Don't Inspire Confidence

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 reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after glancing at the trends within Marie Brizard Wine & Spirits (EPA:MBWS), we weren't too hopeful.

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 Marie Brizard Wine & Spirits:

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

0.0027 = €540k ÷ (€268m - €70m) (Based on the trailing twelve months to June 2021).

Therefore, Marie Brizard Wine & Spirits has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 4.7%.

View our latest analysis for Marie Brizard Wine & Spirits

In the above chart we have measured Marie Brizard Wine & Spirits' 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 report on analyst forecasts for the company.

So How Is Marie Brizard Wine & Spirits' ROCE Trending?

The trend of returns that Marie Brizard Wine & Spirits is generating are raising some concerns. Unfortunately, returns have declined substantially over the last five years to the 0.3% we see today. In addition to that, Marie Brizard Wine & Spirits is now employing 34% less capital than it was five years ago. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. 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. We expect this has contributed to the stock plummeting 90% during the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Like most companies, Marie Brizard Wine & Spirits does come with some risks, and we've found 1 warning sign that you should be aware of.

While Marie Brizard Wine & Spirits 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.

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.

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