Fossil Group (NASDAQ:FOSL) Will Be Looking To Turn Around Its Returns

What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. 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 Fossil Group (NASDAQ:FOSL), the trends above didn't look too great.

What Is Return On Capital Employed (ROCE)?

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 Fossil Group, this is the formula:

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

0.0086 = US$7.0m ÷ (US$1.2b - US$426m) (Based on the trailing twelve months to December 2022).

Thus, Fossil Group has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Luxury industry average of 18%.

See our latest analysis for Fossil Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fossil Group's ROCE against it's prior returns. If you're interested in investigating Fossil Group's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Fossil Group Tell Us?

In terms of Fossil Group's historical ROCE trend, it isn't fantastic. To be more specific, today's ROCE was 2.8% five years ago but has since fallen to 0.9%. In addition to that, Fossil Group is now employing 29% less capital than it was five years ago. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. If these underlying trends continue, we wouldn't be too optimistic going forward.

The Key Takeaway

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Investors haven't taken kindly to these developments, since the stock has declined 69% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Fossil Group could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Fossil Group 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.