Is Kin and Carta (LON:KCT) Set To Make A Turnaround?

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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 the company is producing less profit from its investments and its total assets are decreasing. In light of that, from a first glance at Kin and Carta (LON:KCT), we've spotted some signs that it could be struggling, so let's investigate.

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. The formula for this calculation on Kin and Carta is:

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

0.019 = UK£2.6m ÷ (UK£179m - UK£43m) (Based on the trailing twelve months to July 2020).

Therefore, Kin and Carta has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Media industry average of 9.1%.

Check out our latest analysis for Kin and Carta

Above you can see how the current ROCE for Kin and Carta compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Kin and Carta here for free.

What Does the ROCE Trend For Kin and Carta Tell Us?

We aren't inspired by the trend, given ROCE has reduced by 84% over the last five years and Kin and Carta is applying -45% less capital in the business, even after the capital raising they conducted (prior to their latest reported figures).

Our Take On Kin and Carta's ROCE

To see Kin and Carta 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 46% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we've found 2 warning signs for Kin and Carta that we think you should be aware of.

While Kin and Carta 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.

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