Returns On Capital At DM-KER Zártköruen Muködo Részvénytársaság (BUSE:DMKER) Paint A Concerning Picture

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. Having said that, after a brief look, DM-KER Zártköruen Muködo Részvénytársaság (BUSE:DMKER) we aren't filled with optimism, but let's investigate further.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for DM-KER Zártköruen Muködo Részvénytársaság, this is the formula:

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

0.11 = Ft382m ÷ (Ft8.5b - Ft5.0b) (Based on the trailing twelve months to December 2020).

So, DM-KER Zártköruen Muködo Részvénytársaság has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

View our latest analysis for DM-KER Zártköruen Muködo Részvénytársaság

In the above chart we have measured DM-KER Zártköruen Muködo Részvénytársaság's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering DM-KER Zártköruen Muködo Részvénytársaság here for free.

How Are Returns Trending?

In terms of DM-KER Zártköruen Muködo Részvénytársaság's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 26% one year ago, but since then it has dropped noticeably. 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 one year. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on DM-KER Zártköruen Muködo Részvénytársaság becoming one if things continue as they have.

On a side note, DM-KER Zártköruen Muködo Részvénytársaság's current liabilities are still rather high at 59% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On DM-KER Zártköruen Muködo Részvénytársaság'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. Unsurprisingly then, the stock has dived 98% over the last year, so investors are recognizing these changes and don't like the company's prospects. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One more thing: We've identified 7 warning signs with DM-KER Zártköruen Muködo Részvénytársaság (at least 4 which are a bit concerning) , and understanding them would certainly be useful.

While DM-KER Zártköruen Muködo Részvénytársaság 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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