Garpco Aktiebolag's (NGM:GARPCO B) Returns On Capital Not Reflecting Well On The Business

What underlying fundamental trends can indicate that a company might be in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after glancing at the trends within Garpco Aktiebolag (NGM:GARPCO B), we weren't too hopeful.

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Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Garpco Aktiebolag, this is the formula:

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

0.0049 = kr1.6m ÷ (kr453m - kr135m) (Based on the trailing twelve months to June 2025).

Therefore, Garpco Aktiebolag has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Machinery industry average of 14%.

View our latest analysis for Garpco Aktiebolag

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

The Trend Of ROCE

In terms of Garpco Aktiebolag's historical ROCE movements, the trend doesn't inspire confidence. About one year ago, returns on capital were 7.2%, 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. 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 Garpco Aktiebolag becoming one if things continue as they have.

What We Can Learn From Garpco Aktiebolag's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. In spite of that, the stock has delivered a 4.6% return to shareholders who held over 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.

Garpco Aktiebolag does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those can't be ignored...

While Garpco Aktiebolag isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.