Helix Energy Solutions Group (NYSE:HLX) May Have Issues Allocating Its Capital

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. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within Helix Energy Solutions Group (NYSE:HLX), we weren't too hopeful.

Understanding 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 Helix Energy Solutions Group, this is the formula:

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

0.0011 = US$2.4m ÷ (US$2.4b - US$288m) (Based on the trailing twelve months to March 2023).

So, Helix Energy Solutions Group has an ROCE of 0.1%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 9.0%.

Check out our latest analysis for Helix Energy Solutions Group

In the above chart we have measured Helix Energy Solutions Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Helix Energy Solutions Group

The Trend Of ROCE

We are a bit worried about the trend of returns on capital at Helix Energy Solutions Group. To be more specific, the ROCE was 0.7% five years ago, but since then it has dropped noticeably. 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. If these trends continue, we wouldn't expect Helix Energy Solutions Group to turn into a multi-bagger.

What We Can Learn From Helix Energy Solutions Group's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Like most companies, Helix Energy Solutions Group does come with some risks, and we've found 1 warning sign that you should be aware of.

While Helix Energy Solutions 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.

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

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.