These Return Metrics Don't Make Societatea de Constructii Napoca (BVB:NAPO) Look Too Strong

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? 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. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Societatea de Constructii Napoca (BVB:NAPO), we weren't too hopeful.

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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. To calculate this metric for Societatea de Constructii Napoca, this is the formula:

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

0.011 = RON1.0m ÷ (RON141m - RON47m) (Based on the trailing twelve months to June 2025).

Thus, Societatea de Constructii Napoca has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 6.5%.

View our latest analysis for Societatea de Constructii Napoca

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'd like to look at how Societatea de Constructii Napoca has performed in the past in other metrics, you can view this free graph of Societatea de Constructii Napoca's past earnings, revenue and cash flow.

How Are Returns Trending?

There is reason to be cautious about Societatea de Constructii Napoca, given the returns are trending downwards. About five years ago, returns on capital were 2.3%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 Societatea de Constructii Napoca becoming one if things continue as they have.

What We Can Learn From Societatea de Constructii Napoca's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Long term shareholders who've owned the stock over the last five years have experienced a 65% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to continue researching Societatea de Constructii Napoca, you might be interested to know about the 2 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.