CSC Holdings (SGX:C06) Is Finding It Tricky To Allocate Its Capital

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. 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. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into CSC Holdings (SGX:C06), we weren't too upbeat about how things were going.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for CSC Holdings, this is the formula:

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

0.043 = S$7.4m ÷ (S$396m - S$226m) (Based on the trailing twelve months to March 2025).

Therefore, CSC Holdings has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Construction industry average of 9.1%.

See our latest analysis for CSC Holdings

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

What Does the ROCE Trend For CSC Holdings Tell Us?

We are a bit worried about the trend of returns on capital at CSC Holdings. About five years ago, returns on capital were 7.0%, 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 CSC Holdings becoming one if things continue as they have.

On a separate but related note, it's important to know that CSC Holdings has a current liabilities to total assets ratio of 57%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On CSC Holdings' ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 33% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a final note, we found 5 warning signs for CSC Holdings (1 shouldn't be ignored) you should be aware of.

While CSC Holdings 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.