Some Investors May Be Worried About S.C. UAMT's (BVB:UAM) Returns On Capital

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. In light of that, from a first glance at S.C. UAMT (BVB:UAM), we've spotted some signs that it could be struggling, so let's investigate.

We've discovered 3 warning signs about S.C. UAMT. View them for free.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for S.C. UAMT:

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

0.0073 = RON586k ÷ (RON87m - RON6.6m) (Based on the trailing twelve months to December 2024).

So, S.C. UAMT has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 9.5%.

Check out our latest analysis for S.C. UAMT

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

What Can We Tell From S.C. UAMT's ROCE Trend?

In terms of S.C. UAMT's historical ROCE trend, it isn't fantastic. Unfortunately, returns have declined substantially over the last five years to the 0.7% we see today. On top of that, the business is utilizing 32% less capital within its operations. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

On a related note, S.C. UAMT has decreased its current liabilities to 7.6% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

In Conclusion...

To see S.C. UAMT reducing the capital employed in the business in tandem with diminishing returns, is concerning. We expect this has contributed to the stock plummeting 78% during the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with S.C. UAMT (including 2 which make us uncomfortable) .

While S.C. UAMT 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.