What These Trends Mean At Zaklady Urzadzen Komputerowych ELZAB (WSE:ELZ)

What financial metrics can indicate to us that a company is maturing or even 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 combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Zaklady Urzadzen Komputerowych ELZAB (WSE:ELZ), we weren't too hopeful.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Zaklady Urzadzen Komputerowych ELZAB is:

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

0.11 = zł11m ÷ (zł188m - zł88m) (Based on the trailing twelve months to September 2020).

Thus, Zaklady Urzadzen Komputerowych ELZAB has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electronic industry average of 13%.

View our latest analysis for Zaklady Urzadzen Komputerowych ELZAB

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Zaklady Urzadzen Komputerowych ELZAB, check out these free graphs here.

What Can We Tell From Zaklady Urzadzen Komputerowych ELZAB's ROCE Trend?

We are a bit worried about the trend of returns on capital at Zaklady Urzadzen Komputerowych ELZAB. To be more specific, the ROCE was 18% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Zaklady Urzadzen Komputerowych ELZAB becoming one if things continue as they have.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 47%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 11%. What this means is that in reality, a rather large portion of the business is being funded by the likes of the company's suppliers or short-term creditors, which can bring some risks of its own.

What We Can Learn From Zaklady Urzadzen Komputerowych ELZAB's ROCE

In summary, it's unfortunate that Zaklady Urzadzen Komputerowych ELZAB is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 64% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing: We've identified 4 warning signs with Zaklady Urzadzen Komputerowych ELZAB (at least 2 which shouldn't be ignored) , and understanding them would certainly be useful.

While Zaklady Urzadzen Komputerowych ELZAB 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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