Returns On Capital At Adris grupa d. d (ZGSE:ADRS) Paint A Concerning Picture

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. And from a first read, things don't look too good at Adris grupa d. d (ZGSE:ADRS), so let's see why.

Understanding 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 Adris grupa d. d is:

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

0.0064 = Kn115m ÷ (Kn22b - Kn4.2b) (Based on the trailing twelve months to September 2020).

Thus, Adris grupa d. d has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 5.6%.

View our latest analysis for Adris grupa d. d

Above you can see how the current ROCE for Adris grupa d. d 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 Adris grupa d. d.

What Can We Tell From Adris grupa d. d's ROCE Trend?

In terms of Adris grupa d. d's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 15%, however they're now substantially lower than that as we saw above. 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 Adris grupa d. d to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that Adris grupa d. d is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 11% over the last five years, so it looks like investors are recognizing these changes. 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 Adris grupa d. d that we think you should be aware of.

While Adris grupa d. d 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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