These Return Metrics Don't Make Soup Holdings (SGX:5KI) Look Too Strong

When researching a stock for investment, what can tell us that the company is in decline? 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. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within Soup Holdings (SGX:5KI), we weren't too hopeful.

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

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

0.031 = S$535k ÷ (S$28m - S$11m) (Based on the trailing twelve months to June 2024).

Thus, Soup Holdings has an ROCE of 3.1%. In absolute terms, that's a low return but it's around the Hospitality industry average of 3.7%.

Check out our latest analysis for Soup Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Soup Holdings' 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 Soup Holdings.

So How Is Soup Holdings' ROCE Trending?

We are a bit worried about the trend of returns on capital at Soup Holdings. To be more specific, the ROCE was 12% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Soup Holdings becoming one if things continue as they have.

The Key Takeaway

In summary, it's unfortunate that Soup Holdings is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 50% 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.

Soup Holdings does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those is significant...

While Soup 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.