Returns On Capital Signal Difficult Times Ahead For Conduril - Engenharia (ELI:CDU)

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. 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 Conduril - Engenharia (ELI:CDU), so let's see why.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)

0.036 = €9.5m ÷ (€387m - €123m) (Based on the trailing twelve months to December 2022).

So, Conduril - Engenharia has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 10%.

Check out our latest analysis for Conduril - Engenharia

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

So How Is Conduril - Engenharia's ROCE Trending?

We are a bit worried about the trend of returns on capital at Conduril - Engenharia. About five years ago, returns on capital were 6.0%, however they're now substantially lower than that as we saw above. 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. 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.

The Bottom Line 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. It should come as no surprise then that the stock has fallen 48% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking 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 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.