Maintel Holdings (LON:MAI) Will Be Looking To Turn Around Its Returns
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 Maintel Holdings (LON:MAI), we weren't too hopeful.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Maintel Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.038 = UK£1.8m ÷ (UK£93m - UK£46m) (Based on the trailing twelve months to June 2022).
Thus, Maintel Holdings has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 8.3%.
View our latest analysis for Maintel Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Maintel Holdings' ROCE against it's prior returns. If you'd like to look at how Maintel Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
There is reason to be cautious about Maintel Holdings, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 12% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Maintel Holdings to turn into a multi-bagger.
On a separate but related note, it's important to know that Maintel Holdings has a current liabilities to total assets ratio of 50%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
Our Take On Maintel Holdings' ROCE
In summary, it's unfortunate that Maintel Holdings is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 70% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
If you'd like to know more about Maintel Holdings, we've spotted 4 warning signs, and 2 of them make us uncomfortable.
While Maintel Holdings 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.
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