Stalexport Autostrady (WSE:STX) Will Be Looking To Turn Around Its Returns

When researching a stock for investment, what can tell us that the company is 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. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after glancing at the trends within Stalexport Autostrady (WSE:STX), we weren't too hopeful.

What Is 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 Stalexport Autostrady is:

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

0.11 = zł127m ÷ (zł1.3b - zł207m) (Based on the trailing twelve months to September 2022).

Therefore, Stalexport Autostrady has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Infrastructure industry average of 8.4% it's much better.

Check out our latest analysis for Stalexport Autostrady

Historical performance is a great place to start when researching a stock so above you can see the gauge for Stalexport Autostrady's ROCE against it's prior returns. If you'd like to look at how Stalexport Autostrady has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Stalexport Autostrady. To be more specific, the ROCE was 20% five years ago, but since then it has dropped noticeably. 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 Stalexport Autostrady to turn into a multi-bagger.

The Bottom Line On Stalexport Autostrady's ROCE

In summary, it's unfortunate that Stalexport Autostrady is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 1.1% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

On a final note, we found 2 warning signs for Stalexport Autostrady (1 is significant) you should be aware of.

While Stalexport Autostrady 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.