Asia Pacific Wire & Cable (NASDAQ:APWC) Could Be Struggling To Allocate 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. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after glancing at the trends within Asia Pacific Wire & Cable (NASDAQ:APWC), we weren't too hopeful.

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. To calculate this metric for Asia Pacific Wire & Cable, this is the formula:

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

0.013 = US$2.8m ÷ (US$345m - US$125m) (Based on the trailing twelve months to June 2023).

Therefore, Asia Pacific Wire & Cable has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 13%.

View our latest analysis for Asia Pacific Wire & Cable

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 Asia Pacific Wire & Cable, check out these free graphs here.

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Asia Pacific Wire & Cable. About five years ago, returns on capital were 5.1%, however they're now substantially lower than that as we saw above. 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. If these trends continue, we wouldn't expect Asia Pacific Wire & Cable to turn into a multi-bagger.

What We Can Learn From Asia Pacific Wire & Cable's ROCE

In summary, it's unfortunate that Asia Pacific Wire & Cable is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 35% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing: We've identified 3 warning signs with Asia Pacific Wire & Cable (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While Asia Pacific Wire & Cable 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.