Conduril - Engenharia (ELI:CDU) Will Be Looking To Turn Around Its Returns

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. Basically the company is earning less on its investments and it is also reducing its total assets. On that note, looking into Conduril - Engenharia (ELI:CDU), we weren't too upbeat about how things were going.

Return On Capital Employed (ROCE): What Is It?

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 Conduril - Engenharia is:

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

0.0099 = €2.3m ÷ (€362m - €129m) (Based on the trailing twelve months to December 2023).

So, Conduril - Engenharia has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Construction industry average of 11%.

View our latest analysis for Conduril - Engenharia

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're interested in investigating Conduril - Engenharia's past further, check out this free graph covering Conduril - Engenharia's past earnings, revenue and cash flow.

So How Is Conduril - Engenharia's ROCE Trending?

In terms of Conduril - Engenharia's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 8.0% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Conduril - Engenharia becoming one if things continue as they have.

Our Take On Conduril - Engenharia's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Despite the concerning underlying trends, the stock has actually gained 1.6% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you want to continue researching Conduril - Engenharia, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Conduril - Engenharia may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.