Be Wary Of AirSculpt Technologies (NASDAQ:AIRS) And Its Returns On 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. 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. Having said that, after a brief look, AirSculpt Technologies (NASDAQ:AIRS) we aren't filled with optimism, but let's investigate further.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for AirSculpt Technologies:

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

0.0023 = US$437k ÷ (US$217m - US$24m) (Based on the trailing twelve months to June 2023).

Thus, AirSculpt Technologies has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 9.5%.

See our latest analysis for AirSculpt Technologies

In the above chart we have measured AirSculpt Technologies' 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.

What Does the ROCE Trend For AirSculpt Technologies Tell Us?

In terms of AirSculpt Technologies' historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 3.2% that they were earning three 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. If these trends continue, we wouldn't expect AirSculpt Technologies to turn into a multi-bagger.

The Bottom Line On AirSculpt Technologies' ROCE

In summary, it's unfortunate that AirSculpt Technologies is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last year have experienced a 11% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing, we've spotted 1 warning sign facing AirSculpt Technologies that you might find interesting.

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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.