Apex Biotechnology (TWSE:1733) 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? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Apex Biotechnology (TWSE:1733), we weren't too hopeful.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Apex Biotechnology, this is the formula:

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

0.063 = NT$116m ÷ (NT$2.3b - NT$499m) (Based on the trailing twelve months to March 2024).

So, Apex Biotechnology has an ROCE of 6.3%. On its own, that's a low figure but it's around the 7.5% average generated by the Medical Equipment industry.

See our latest analysis for Apex Biotechnology

Above you can see how the current ROCE for Apex Biotechnology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Apex Biotechnology for free.

So How Is Apex Biotechnology's ROCE Trending?

There is reason to be cautious about Apex Biotechnology, given the returns are trending downwards. About five years ago, returns on capital were 9.9%, 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. 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 Apex Biotechnology becoming one if things continue as they have.

Our Take On Apex Biotechnology'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. Investors must expect better things on the horizon though because the stock has risen 27% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

On a separate note, we've found 2 warning signs for Apex Biotechnology you'll probably want to know about.

While Apex Biotechnology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com