Investors Could Be Concerned With AirSculpt Technologies' (NASDAQ:AIRS) Returns On Capital

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Basically the company is earning less on its investments and it is also reducing its total assets. Having said that, after a brief look, AirSculpt Technologies (NASDAQ:AIRS) we aren't filled with optimism, but let's investigate further.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on AirSculpt Technologies is:

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

0.02 = US$3.7m ÷ (US$208m - US$25m) (Based on the trailing twelve months to September 2024).

Therefore, AirSculpt Technologies has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 10%.

View our latest analysis for AirSculpt Technologies

Above you can see how the current ROCE for AirSculpt Technologies 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 AirSculpt Technologies .

What Can We Tell From AirSculpt Technologies' ROCE Trend?

We are a bit worried about the trend of returns on capital at AirSculpt Technologies. About four years ago, returns on capital were 4.6%, 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 four years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on AirSculpt Technologies becoming one if things continue as they have.

The Key Takeaway

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 66% from where it was three years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a separate note, we've found 2 warning signs for AirSculpt Technologies you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.