Stock Analysis

How Has Intracom Constructions Societe Anonyme Technical and Steel Constructions (ATH:INKAT) Allocated Its Capital?

ATSE:INKAT
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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. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. On that note, looking into Intracom Constructions Societe Anonyme Technical and Steel Constructions (ATH:INKAT), we weren't too upbeat about how things were going.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Intracom Constructions Societe Anonyme Technical and Steel Constructions:

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

0.038 = €3.7m ÷ (€291m - €195m) (Based on the trailing twelve months to June 2020).

Thus, Intracom Constructions Societe Anonyme Technical and Steel Constructions has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 11%.

View our latest analysis for Intracom Constructions Societe Anonyme Technical and Steel Constructions

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ATSE:INKAT Return on Capital Employed March 16th 2021

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

So How Is Intracom Constructions Societe Anonyme Technical and Steel Constructions' ROCE Trending?

There is reason to be cautious about Intracom Constructions Societe Anonyme Technical and Steel Constructions, given the returns are trending downwards. About five years ago, returns on capital were 10%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Intracom Constructions Societe Anonyme Technical and Steel Constructions becoming one if things continue as they have.

On a side note, Intracom Constructions Societe Anonyme Technical and Steel Constructions' current liabilities are still rather high at 67% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Intracom Constructions Societe Anonyme Technical and Steel Constructions' ROCE

In summary, it's unfortunate that Intracom Constructions Societe Anonyme Technical and Steel Constructions is generating lower returns from the same amount of capital. The market must be rosy on the stock's future because even though the underlying trends aren't too encouraging, the stock has soared 127%. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Like most companies, Intracom Constructions Societe Anonyme Technical and Steel Constructions does come with some risks, and we've found 2 warning signs that 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.

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