Returns On Capital At DENTSPLY SIRONA (NASDAQ:XRAY) Paint A Concerning Picture

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. And from a first read, things don't look too good at DENTSPLY SIRONA (NASDAQ:XRAY), so let's see why.

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 DENTSPLY SIRONA, this is the formula:

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

0.044 = US$279m ÷ (US$7.7b - US$1.3b) (Based on the trailing twelve months to June 2023).

Therefore, DENTSPLY SIRONA has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 9.7%.

See our latest analysis for DENTSPLY SIRONA

In the above chart we have measured DENTSPLY SIRONA's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for DENTSPLY SIRONA.

The Trend Of ROCE

In terms of DENTSPLY SIRONA's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 6.3%, 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. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on DENTSPLY SIRONA becoming one if things continue as they have.

Our Take On DENTSPLY SIRONA's ROCE

In summary, it's unfortunate that DENTSPLY SIRONA is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 11% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a separate note, we've found 1 warning sign for DENTSPLY SIRONA you'll probably want to know about.

While DENTSPLY SIRONA 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.