Here's What's Concerning About Organización Cultiba. de's (BMV:CULTIBAB) Returns On Capital

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. In light of that, from a first glance at Organización Cultiba. de (BMV:CULTIBAB), we've spotted some signs that it could be struggling, so let's investigate.

Return On Capital Employed (ROCE): What is it?

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 Organización Cultiba. de is:

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

0.053 = Mex$829m ÷ (Mex$20b - Mex$4.4b) (Based on the trailing twelve months to March 2022).

Therefore, Organización Cultiba. de has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 13%.

View our latest analysis for Organización Cultiba. de

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

The Trend Of ROCE

In terms of Organización Cultiba. de's historical ROCE trend, it isn't fantastic. To be more specific, today's ROCE was 7.7% five years ago but has since fallen to 5.3%. What's equally concerning is that the amount of capital deployed in the business has shrunk by 28% over that same period. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. If these underlying trends continue, we wouldn't be too optimistic going forward.

Our Take On Organización Cultiba. de's ROCE

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Investors haven't taken kindly to these developments, since the stock has declined 27% from where it was five years ago. 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 2 warning signs with Organización Cultiba. de and understanding them should be part of your investment process.

While Organización Cultiba. de isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.