The Returns On Capital At Maintel Holdings (LON:MAI) Don't Inspire Confidence

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. 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, Maintel Holdings (LON:MAI) we aren't filled with optimism, but let's investigate further.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Maintel Holdings, this is the formula:

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

0.038 = UK£1.8m ÷ (UK£93m - UK£46m) (Based on the trailing twelve months to June 2022).

Thus, Maintel Holdings has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.3%.

See our latest analysis for Maintel Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Maintel Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Maintel Holdings Tell Us?

We are a bit worried about the trend of returns on capital at Maintel Holdings. To be more specific, the ROCE was 12% five years ago, but since then it has dropped noticeably. 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 Maintel Holdings to turn into a multi-bagger.

On a separate but related note, it's important to know that Maintel Holdings has a current liabilities to total assets ratio of 50%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Maintel Holdings' ROCE

In summary, it's unfortunate that Maintel Holdings is generating lower returns from the same amount of capital. We expect this has contributed to the stock plummeting 84% during the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you'd like to know more about Maintel Holdings, we've spotted 6 warning signs, and 3 of them are potentially serious.

While Maintel Holdings 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.