Unibios Holdings (ATH:BIOSK) Has Some Difficulty Using Its Capital Effectively

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base 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. And from a first read, things don't look too good at Unibios Holdings (ATH:BIOSK), so let's see why.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Unibios Holdings is:

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

0.026 = €421k ÷ (€23m - €6.9m) (Based on the trailing twelve months to December 2020).

Therefore, Unibios Holdings has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 9.3%.

See our latest analysis for Unibios Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Unibios Holdings' ROCE against it's prior returns. If you're interested in investigating Unibios Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Unibios Holdings' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 3.6% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Unibios Holdings to turn into a multi-bagger.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. In spite of that, the stock has delivered a 36% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Unibios Holdings (of which 1 doesn't sit too well with us!) that you should know about.

While Unibios 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.
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