To avoid investing in a declining business, there are several financial indicators that can provide early signs of aging.When there is a decline return Increase in capital employed (ROCE) due to decrease base This is often how mature businesses show signs of aging. This trend ultimately means that companies will invest less and receive less return on their investment. After taking a look at the trends within the company, C&C Group (LON:CCR), we didn't expect much.
Return on Capital Employed (ROCE): What is it?
For those who have never used ROCE before, it measures the “return” (pre-tax profit) that a company generates from the capital employed in its business. To calculate this metric for C&C groups, use the following formula:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.056 = 59 million euros ÷ (1.5 billion euros – 491 million euros) (Based on the previous 12 months to August 2023).
therefore, C&C Group's ROCE is 5.6%. In absolute terms, this is a poor return, 15% below the beverage industry average.
Check out our latest analysis for C&C Group.
Above you can see how C&C Group's current ROCE compares to its previous return on equity, but history can only tell us so much. If you want to know what analysts are predicting for the future, check out this article. free This is a report from C&C Group.
What are the return trends like?
Given the downward trend in returns, there are reasons to be cautious about C&C Group. Specifically, ROCE was 8.7% five years ago, but it has declined significantly since then. In addition to that, it's worth noting that the amount of capital employed within the business has remained relatively stable. This combination may indicate a mature business that still has areas to invest capital, but the returns it receives may not be as high due to new competition and the possibility of lower profit margins. So these trends aren't usually conducive to producing multiple buggers, so if things continue as they are, I wouldn't hold my breath that the C&C group will become one.
The conclusion is…
In summary, it's disappointing to see that C&C Group is earning a lower return on the same amount of capital. It appears the market may not like this trend, either, as long-term shareholders who have held the stock have seen their investment decline by 32% over the past three years. Unless these indicators shift to a more positive trajectory, we will look elsewhere.
However, C&C Group has some risks, which we discovered 1 warning sign for C&C Group What you might be interested in.
For those who like investing, solid company, check this out free List of companies with strong balance sheets and high return 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 using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
