Elektro Maribor d.d (LJSE:EMAG) Will Be Hoping To Turn Its Returns On Capital Around

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? 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. Basically the company is earning less on its investments and it is also reducing its total assets. In light of that, from a first glance at Elektro Maribor d.d (LJSE:EMAG), we've spotted some signs that it could be struggling, so let's investigate.

Return On Capital Employed (ROCE): What is it?

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 Elektro Maribor d.d is:

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

0.03 = €12m ÷ (€457m - €57m) (Based on the trailing twelve months to September 2021).

Therefore, Elektro Maribor d.d has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 7.2%.

View our latest analysis for Elektro Maribor d.d

Historical performance is a great place to start when researching a stock so above you can see the gauge for Elektro Maribor d.d's ROCE against it's prior returns. If you'd like to look at how Elektro Maribor d.d has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Elektro Maribor d.d's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 4.8% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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. If these trends continue, we wouldn't expect Elektro Maribor d.d to turn into a multi-bagger.

The Bottom Line On Elektro Maribor d.d's ROCE

In summary, it's unfortunate that Elektro Maribor d.d is generating lower returns from the same amount of capital. But investors must be expecting an improvement of sorts because over the last three yearsthe stock has delivered a respectable 23% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you'd like to know more about Elektro Maribor d.d, we've spotted 2 warning signs, and 1 of them is a bit concerning.

While Elektro Maribor 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.