The Returns On Capital At Datalogic (BIT:DAL) Don't Inspire Confidence

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. 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 combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Datalogic (BIT:DAL), we weren't too hopeful.

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 Datalogic:

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

0.084 = €44m ÷ (€747m - €226m) (Based on the trailing twelve months to March 2021).

Therefore, Datalogic has an ROCE of 8.4%. In absolute terms, that's a low return but it's around the Electronic industry average of 9.1%.

Check out our latest analysis for Datalogic

Above you can see how the current ROCE for Datalogic compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

There is reason to be cautious about Datalogic, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 12% that they were earning five years ago. 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 five years. If these trends continue, we wouldn't expect Datalogic to turn into a multi-bagger.

The Bottom Line

In summary, it's unfortunate that Datalogic is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 26% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you'd like to know about the risks facing Datalogic, we've discovered 1 warning sign that you should be aware of.

While Datalogic 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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