Commercial Vehicle Group's (NASDAQ:CVGI) Returns On Capital Tell Us There Is Reason To Feel Uneasy

What underlying fundamental trends can indicate that a company might be in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after we looked into Commercial Vehicle Group (NASDAQ:CVGI), the trends above didn't look too great.

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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. To calculate this metric for Commercial Vehicle Group, this is the formula:

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

0.0058 = US$1.8m ÷ (US$430m - US$126m) (Based on the trailing twelve months to June 2025).

Thus, Commercial Vehicle Group has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Machinery industry average of 12%.

See our latest analysis for Commercial Vehicle Group

Above you can see how the current ROCE for Commercial Vehicle Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Commercial Vehicle Group .

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Commercial Vehicle Group. Unfortunately the returns on capital have diminished from the 3.9% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 Commercial Vehicle Group becoming one if things continue as they have.

The Bottom Line

In summary, it's unfortunate that Commercial Vehicle Group is generating lower returns from the same amount of capital. We expect this has contributed to the stock plummeting 72% during the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One more thing: We've identified 2 warning signs with Commercial Vehicle Group (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

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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.