Capital Allocation Trends At UNIOR Kovaska industrija d.d (LJSE:UKIG) Aren't Ideal

When researching a stock for investment, what can tell us that the company is 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. 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 UNIOR Kovaska industrija d.d (LJSE:UKIG), we weren't too upbeat about how things were going.

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 UNIOR Kovaska industrija d.d is:

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

0.038 = €12m ÷ (€403m - €87m) (Based on the trailing twelve months to March 2024).

Thus, UNIOR Kovaska industrija d.d has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 8.6%.

Check out our latest analysis for UNIOR Kovaska industrija d.d

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'd like to look at how UNIOR Kovaska industrija d.d has performed in the past in other metrics, you can view this free graph of UNIOR Kovaska industrija d.d's past earnings, revenue and cash flow.

So How Is UNIOR Kovaska industrija d.d's ROCE Trending?

We are a bit worried about the trend of returns on capital at UNIOR Kovaska industrija d.d. About five years ago, returns on capital were 5.4%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 UNIOR Kovaska industrija d.d becoming one if things continue as they have.

Our Take On UNIOR Kovaska industrija d.d'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. Long term shareholders who've owned the stock over the last five years have experienced a 33% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with UNIOR Kovaska industrija d.d (including 2 which make us uncomfortable) .

While UNIOR Kovaska industrija d.d 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.