These Return Metrics Don't Make S.C. Turism Covasna (BVB:TUAA) Look Too Strong

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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. 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. So after glancing at the trends within S.C. Turism Covasna (BVB:TUAA), we weren't too hopeful.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on S.C. Turism Covasna is:

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

0.017 = RON1.4m ÷ (RON88m - RON3.7m) (Based on the trailing twelve months to December 2024).

So, S.C. Turism Covasna has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 3.5%.

Check out our latest analysis for S.C. Turism Covasna

Historical performance is a great place to start when researching a stock so above you can see the gauge for S.C. Turism Covasna's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of S.C. Turism Covasna.

The Trend Of ROCE

There is reason to be cautious about S.C. Turism Covasna, given the returns are trending downwards. To be more specific, the ROCE was 4.7% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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. If these trends continue, we wouldn't expect S.C. Turism Covasna to turn into a multi-bagger.

The Bottom Line On S.C. Turism Covasna's ROCE

In summary, it's unfortunate that S.C. Turism Covasna is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 3.3% in the last year. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing: We've identified 4 warning signs with S.C. Turism Covasna (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

While S.C. Turism Covasna 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.