Be Wary Of Imerys (EPA:NK) And Its Returns On Capital

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. 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. So after glancing at the trends within Imerys (EPA:NK), we weren't too hopeful.

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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. Analysts use this formula to calculate it for Imerys:

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

0.041 = €216m ÷ (€6.7b - €1.4b) (Based on the trailing twelve months to March 2025).

So, Imerys has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 7.6%.

Check out our latest analysis for Imerys

In the above chart we have measured Imerys' 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 Imerys .

What The Trend Of ROCE Can Tell Us

In terms of Imerys' historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 6.6% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Imerys to turn into a multi-bagger.

Our Take On Imerys' ROCE

In summary, it's unfortunate that Imerys is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 25% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

On a final note, we've found 1 warning sign for Imerys that we think you should be aware of.

While Imerys 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.