Here's What's Concerning About UNIOR Kovaska industrija d.d's (LJSE:UKIG) Returns On 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. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after glancing at the trends within UNIOR Kovaska industrija d.d (LJSE:UKIG), we weren't too hopeful.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)

0.034 = €10m ÷ (€381m - €78m) (Based on the trailing twelve months to June 2023).

So, UNIOR Kovaska industrija d.d has an ROCE of 3.4%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 11%.

View 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 want to delve into the historical earnings, revenue and cash flow of UNIOR Kovaska industrija d.d, check out these free graphs here.

The Trend Of ROCE

In terms of UNIOR Kovaska industrija d.d's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 5.6% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. 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.

In Conclusion...

In summary, it's unfortunate that UNIOR Kovaska industrija d.d is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 40% 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.

If you'd like to know more about UNIOR Kovaska industrija d.d, we've spotted 5 warning signs, and 2 of them shouldn't be ignored.

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.