Some Investors May Be Worried About Anpario's (LON:ANP) Returns On Capital
What underlying fundamental trends can indicate that a company might be in decline? 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. Basically the company is earning less on its investments and it is also reducing its total assets. So after we looked into Anpario (LON:ANP), the trends above didn't look too great.
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 Anpario:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.071 = UK£2.5m ÷ (UK£40m - UK£4.7m) (Based on the trailing twelve months to December 2023).
So, Anpario has an ROCE of 7.1%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.8%.
See our latest analysis for Anpario
Above you can see how the current ROCE for Anpario 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 analyst report for Anpario .
What Does the ROCE Trend For Anpario Tell Us?
We are a bit worried about the trend of returns on capital at Anpario. About five years ago, returns on capital were 13%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Anpario becoming one if things continue as they have.
The Bottom Line On Anpario's ROCE
In summary, it's unfortunate that Anpario is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 22% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
Anpario does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...
While Anpario may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
