Investors Met With Slowing Returns on Capital At Interwood-Xylemporia A.T.E.N.E (ATH:XYLEK)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Interwood-Xylemporia A.T.E.N.E (ATH:XYLEK), it didn't seem to tick all of these boxes.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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

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 Interwood-Xylemporia A.T.E.N.E is:

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

0.055 = €1.2m ÷ (€45m - €23m) (Based on the trailing twelve months to December 2024).

Thus, Interwood-Xylemporia A.T.E.N.E has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 11%.

See our latest analysis for Interwood-Xylemporia A.T.E.N.E

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 Interwood-Xylemporia A.T.E.N.E's past further, check out this free graph covering Interwood-Xylemporia A.T.E.N.E's past earnings, revenue and cash flow.

What Does the ROCE Trend For Interwood-Xylemporia A.T.E.N.E Tell Us?

Over the past five years, Interwood-Xylemporia A.T.E.N.E's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Interwood-Xylemporia A.T.E.N.E doesn't end up being a multi-bagger in a few years time.

On a separate but related note, it's important to know that Interwood-Xylemporia A.T.E.N.E has a current liabilities to total assets ratio of 50%, which we'd consider pretty high. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

We can conclude that in regards to Interwood-Xylemporia A.T.E.N.E's returns on capital employed and the trends, there isn't much change to report on. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 114% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 1 warning sign for Interwood-Xylemporia A.T.E.N.E you'll probably want to know about.

While Interwood-Xylemporia A.T.E.N.E 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.