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

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. In light of that, from a first glance at S.C. CEREALCOM (BVB:CCOM), we've spotted some signs that it could be struggling, so let's investigate.

What Is 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. The formula for this calculation on S.C. CEREALCOM is:

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

0.0025 = RON200k ÷ (RON96m - RON15m) (Based on the trailing twelve months to September 2024).

Thus, S.C. CEREALCOM has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.2%.

See our latest analysis for S.C. CEREALCOM

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of S.C. CEREALCOM.

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at S.C. CEREALCOM. To be more specific, the ROCE was 1.9% 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. 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 S.C. CEREALCOM becoming one if things continue as they have.

The Bottom Line On S.C. CEREALCOM'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. But investors must be expecting an improvement of sorts because over the last yearthe stock has delivered a respectable 42% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

S.C. CEREALCOM does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are potentially serious...

While S.C. CEREALCOM 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.