Saylor Advertising.Inc's (TSE:2156) Returns On Capital Tell Us There Is Reason To Feel Uneasy

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This indicates the company is producing less profit from its investments and its total assets are decreasing. In light of that, from a first glance at Saylor Advertising.Inc (TSE:2156), we've spotted some signs that it could be struggling, so let's investigate.

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. The formula for this calculation on Saylor Advertising.Inc is:

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

0.0096 = JP¥23m ÷ (JP¥3.9b - JP¥1.5b) (Based on the trailing twelve months to June 2024).

Therefore, Saylor Advertising.Inc has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Media industry average of 9.8%.

View our latest analysis for Saylor Advertising.Inc

Historical performance is a great place to start when researching a stock so above you can see the gauge for Saylor Advertising.Inc's ROCE against it's prior returns. If you're interested in investigating Saylor Advertising.Inc's past further, check out this free graph covering Saylor Advertising.Inc's past earnings, revenue and cash flow.

What Does the ROCE Trend For Saylor Advertising.Inc Tell Us?

We are a bit worried about the trend of returns on capital at Saylor Advertising.Inc. Unfortunately the returns on capital have diminished from the 5.3% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 Saylor Advertising.Inc to turn into a multi-bagger.

The Key Takeaway

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 88% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

One more thing: We've identified 3 warning signs with Saylor Advertising.Inc (at least 1 which makes us a bit uncomfortable) , and understanding them would certainly be useful.

While Saylor Advertising.Inc 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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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.