Stock Analysis

Inapa - Investimentos Participações e Gestão (ELI:INA) Has Some Difficulty Using Its Capital Effectively

ENXTLS:INA
Source: Shutterstock

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. And from a first read, things don't look too good at Inapa - Investimentos Participações e Gestão (ELI:INA), so let's see why.

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. To calculate this metric for Inapa - Investimentos Participações e Gestão, this is the formula:

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

0.02 = €8.9m ÷ (€727m - €272m) (Based on the trailing twelve months to December 2020).

Thus, Inapa - Investimentos Participações e Gestão has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 13%.

View our latest analysis for Inapa - Investimentos Participações e Gestão

roce
ENXTLS:INA Return on Capital Employed September 10th 2021

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

What Does the ROCE Trend For Inapa - Investimentos Participações e Gestão Tell Us?

In terms of Inapa - Investimentos Participações e Gestão's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 3.7%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 Inapa - Investimentos Participações e Gestão to turn into a multi-bagger.

The Bottom Line

In summary, it's unfortunate that Inapa - Investimentos Participações e Gestão is generating lower returns from the same amount of capital. This could explain why the stock has sunk a total of 73% in the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Inapa - Investimentos Participações e Gestão does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

While Inapa - Investimentos Participações e Gestão 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.

If you’re looking to trade a wide range of investments, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


New: AI Stock Screener & Alerts

Our new AI Stock Screener scans the market every day to uncover opportunities.

• Dividend Powerhouses (3%+ Yield)
• Undervalued Small Caps with Insider Buying
• High growth Tech and AI Companies

Or build your own from over 50 metrics.

Explore Now for Free

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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.