Is Przedsiebiorstwo Hydrauliki Silowej HYDROTOR (WSE:HDR) Set To Make A Turnaround?

What underlying fundamental trends can indicate that a company might be in decline? 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 indicates the company is producing less profit from its investments and its total assets are decreasing. And from a first read, things don't look too good at Przedsiebiorstwo Hydrauliki Silowej HYDROTOR (WSE:HDR), so let's see why.

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. To calculate this metric for Przedsiebiorstwo Hydrauliki Silowej HYDROTOR, this is the formula:

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

0.068 = zł7.5m ÷ (zł129m - zł17m) (Based on the trailing twelve months to September 2020).

So, Przedsiebiorstwo Hydrauliki Silowej HYDROTOR has an ROCE of 6.8%. In absolute terms, that's a low return but it's around the Machinery industry average of 7.9%.

See our latest analysis for Przedsiebiorstwo Hydrauliki Silowej HYDROTOR

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

The Trend Of ROCE

There is reason to be cautious about Przedsiebiorstwo Hydrauliki Silowej HYDROTOR, given the returns are trending downwards. About five years ago, returns on capital were 9.6%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Przedsiebiorstwo Hydrauliki Silowej HYDROTOR to turn into a multi-bagger.

What We Can Learn From Przedsiebiorstwo Hydrauliki Silowej HYDROTOR's ROCE

In summary, it's unfortunate that Przedsiebiorstwo Hydrauliki Silowej HYDROTOR is generating lower returns from the same amount of capital. And long term shareholders have watched their investments stay flat over the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you want to know some of the risks facing Przedsiebiorstwo Hydrauliki Silowej HYDROTOR we've found 3 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

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. 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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