Stock Analysis

The Returns On Capital At AgroFresh Solutions (NASDAQ:AGFS) Don't Inspire Confidence

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NasdaqGS:AGFS
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If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? 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 AgroFresh Solutions (NASDAQ:AGFS), we weren't too hopeful.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for AgroFresh Solutions:

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

0.018 = US$12m ÷ (US$739m - US$42m) (Based on the trailing twelve months to June 2021).

Thus, AgroFresh Solutions has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 9.8%.

Check out our latest analysis for AgroFresh Solutions

roce
NasdaqGS:AGFS Return on Capital Employed September 22nd 2021

Above you can see how the current ROCE for AgroFresh Solutions compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't look fantastic because it's fallen from 2.3% five years ago and the business is utilizing 29% less capital, even after their capital raise (conducted prior to the latest reporting period).

In Conclusion...

To see AgroFresh Solutions reducing the capital employed in the business in tandem with diminishing returns, is concerning. Investors haven't taken kindly to these developments, since the stock has declined 57% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you'd like to know about the risks facing AgroFresh Solutions, we've discovered 1 warning sign that you should be aware of.

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