Returns On Capital At Brim hf (ICE:BRIM) Paint A Concerning Picture

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Having said that, from a first glance at Brim hf (ICE:BRIM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Our free stock report includes 2 warning signs investors should be aware of before investing in Brim hf. Read for free now.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Brim hf:

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

0.052 = €46m ÷ (€996m - €109m) (Based on the trailing twelve months to December 2024).

Thus, Brim hf has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.7%.

View our latest analysis for Brim hf

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

What Can We Tell From Brim hf's ROCE Trend?

When we looked at the ROCE trend at Brim hf, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.2% from 7.7% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On Brim hf's ROCE

We're a bit apprehensive about Brim hf because despite more capital being deployed in the business, returns on that capital and sales have both fallen. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 80% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

One final note, you should learn about the 2 warning signs we've spotted with Brim hf (including 1 which can't be ignored) .

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.