Stock Analysis

1000mercis (EPA:ALMIL) Will Be Looking To Turn Around Its Returns

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When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. 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 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, 1000mercis (EPA:ALMIL) 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 1000mercis:

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

0.016 = €754k ÷ (€77m - €30m) (Based on the trailing twelve months to June 2022).

So, 1000mercis has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Media industry average of 14%.

See our latest analysis for 1000mercis

ENXTPA:ALMIL Return on Capital Employed March 18th 2023

Above you can see how the current ROCE for 1000mercis compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for 1000mercis.

What Does the ROCE Trend For 1000mercis Tell Us?

The trend of returns that 1000mercis is generating are raising some concerns. Unfortunately, returns have declined substantially over the last five years to the 1.6% we see today. In addition to that, 1000mercis is now employing 40% less capital than it was five years ago. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 40%, which has impacted the ROCE. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

The Key Takeaway

To see 1000mercis reducing the capital employed in the business in tandem with diminishing returns, is concerning. Despite the concerning underlying trends, the stock has actually gained 21% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

On a final note, we found 4 warning signs for 1000mercis (1 can't be ignored) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether 1000mercis is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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