These Return Metrics Don't Make Oricon Enterprises (NSE:ORICONENT) Look Too Strong

What underlying fundamental trends can indicate that a company might be in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into Oricon Enterprises (NSE:ORICONENT), we weren't too upbeat about how things were going.

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. Analysts use this formula to calculate it for Oricon Enterprises:

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

0.019 = ₹243m ÷ (₹15b - ₹2.5b) (Based on the trailing twelve months to March 2022).

Therefore, Oricon Enterprises has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Shipping industry average of 20%.

View our latest analysis for Oricon Enterprises

Historical performance is a great place to start when researching a stock so above you can see the gauge for Oricon Enterprises' ROCE against it's prior returns. If you'd like to look at how Oricon Enterprises has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Oricon Enterprises' ROCE Trend?

We are a bit worried about the trend of returns on capital at Oricon Enterprises. To be more specific, the ROCE was 4.0% 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 Oricon Enterprises to turn into a multi-bagger.

Our Take On Oricon Enterprises' 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. Long term shareholders who've owned the stock over the last five years have experienced a 37% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing to note, we've identified 4 warning signs with Oricon Enterprises and understanding these should be part of your investment process.

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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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.