Here's What's Concerning About Sicily by Car's (BIT:SBC) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Sicily by Car (BIT:SBC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Sicily by Car:

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

0.055 = €10m ÷ (€289m - €106m) (Based on the trailing twelve months to June 2024).

So, Sicily by Car has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 7.8%.

View our latest analysis for Sicily by Car

In the above chart we have measured Sicily by Car's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Sicily by Car .

What Can We Tell From Sicily by Car's ROCE Trend?

On the surface, the trend of ROCE at Sicily by Car doesn't inspire confidence. To be more specific, ROCE has fallen from 28% over the last one year. 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 Sicily by Car's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Sicily by Car have fallen, meanwhile the business is employing more capital than it was one year ago. Long term shareholders who've owned the stock over the last three years have experienced a 60% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Like most companies, Sicily by Car does come with some risks, and we've found 3 warning signs that you should be aware of.

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.