Returns On Capital At Kin and Carta (LON:KCT) Paint A Concerning Picture

When researching a stock for investment, what can tell us that the company is in decline? 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. Basically the company is earning less on its investments and it is also reducing its total assets. On that note, looking into Kin and Carta (LON:KCT), we weren't too upbeat about how things were going.

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. To calculate this metric for Kin and Carta, this is the formula:

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 8.7%.

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 to see what analysts are forecasting going forward, you should check out our free report for Kin and Carta.

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).

In Conclusion...

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Long term shareholders who've owned the stock over the last five years have experienced a 26% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

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

While Kin and Carta 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. 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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