What financial metrics can indicate to us that a company is maturing or even in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. Having said that, after a brief look, Stolt-Nielsen (OB:SNI) we aren't filled with optimism, but let's investigate further.
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 Stolt-Nielsen:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.043 = US$173m ÷ (US$4.7b - US$723m) (Based on the trailing twelve months to August 2021).
So, Stolt-Nielsen has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Shipping industry average of 6.9%.
View our latest analysis for Stolt-Nielsen
In the above chart we have measured Stolt-Nielsen'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 report for Stolt-Nielsen.
The Trend Of ROCE
We are a bit worried about the trend of returns on capital at Stolt-Nielsen. Unfortunately the returns on capital have diminished from the 5.7% 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 Stolt-Nielsen to turn into a multi-bagger.
Our Take On Stolt-Nielsen's ROCE
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 53% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.
If you'd like to know more about Stolt-Nielsen, we've spotted 2 warning signs, and 1 of them is a bit concerning.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
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About OB:SNI
Stolt-Nielsen
Provides transportation, storage, and distribution solutions for bulk liquid chemicals, edible oils, acids, and other specialty liquids worldwide.
Undervalued established dividend payer.
