Tronox Holdings' (NYSE:TROX) Returns On Capital Tell Us There Is Reason To Feel Uneasy

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after we looked into Tronox Holdings (NYSE:TROX), the trends above didn't look too great.

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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. Analysts use this formula to calculate it for Tronox Holdings:

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

0.028 = US$142m ÷ (US$6.2b - US$1.1b) (Based on the trailing twelve months to June 2025).

So, Tronox Holdings has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 10%.

Check out our latest analysis for Tronox Holdings

Above you can see how the current ROCE for Tronox Holdings 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 Tronox Holdings .

What Can We Tell From Tronox Holdings' ROCE Trend?

In terms of Tronox Holdings' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 6.8% 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. 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 Tronox Holdings becoming one if things continue as they have.

In Conclusion...

In summary, it's unfortunate that Tronox Holdings is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 56% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Tronox Holdings (of which 2 make us uncomfortable!) that you should 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.