Cakovecki mlinovi d.d (ZGSE:CKML) Has Some Difficulty Using Its Capital Effectively

By
Simply Wall St
Published
May 29, 2021
ZGSE:CKML
Source: Shutterstock

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. 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. This indicates the company is producing less profit from its investments and its total assets are decreasing. In light of that, from a first glance at Cakovecki mlinovi d.d (ZGSE:CKML), we've spotted some signs that it could be struggling, so let's investigate.

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 Cakovecki mlinovi d.d is:

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

0.062 = Kn40m ÷ (Kn842m - Kn199m) (Based on the trailing twelve months to March 2021).

Therefore, Cakovecki mlinovi d.d has an ROCE of 6.2%. Ultimately, that's a low return and it under-performs the Food industry average of 8.5%.

Check out our latest analysis for Cakovecki mlinovi d.d

roce
ZGSE:CKML Return on Capital Employed May 30th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Cakovecki mlinovi d.d's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Cakovecki mlinovi d.d, check out these free graphs here.

So How Is Cakovecki mlinovi d.d's ROCE Trending?

We are a bit worried about the trend of returns on capital at Cakovecki mlinovi d.d. To be more specific, the ROCE was 8.5% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Cakovecki mlinovi d.d to turn into a multi-bagger.

Our Take On Cakovecki mlinovi d.d's ROCE

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. However the stock has delivered a 57% return to shareholders over the last five years, so investors might be expecting the trends to turn around. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Cakovecki mlinovi d.d does have some risks though, and we've spotted 1 warning sign for Cakovecki mlinovi d.d that you might be interested in.

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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