New Zealand markets closed
  • NZX 50

    12,197.15
    +44.95 (+0.37%)
     
  • NZD/USD

    0.6319
    -0.0011 (-0.17%)
     
  • NZD/EUR

    0.5854
    -0.0002 (-0.04%)
     
  • ALL ORDS

    7,771.70
    -0.10 (-0.00%)
     
  • ASX 200

    7,562.80
    +4.70 (+0.06%)
     
  • OIL

    73.59
    +0.20 (+0.27%)
     
  • GOLD

    1,877.70
    +1.10 (+0.06%)
     
  • NASDAQ

    12,573.36
    -229.74 (-1.79%)
     
  • FTSE

    7,901.80
    +81.64 (+1.04%)
     
  • Dow Jones

    33,926.01
    -127.89 (-0.38%)
     
  • DAX

    15,476.43
    -32.77 (-0.21%)
     
  • Hang Seng

    21,660.47
    -297.93 (-1.36%)
     
  • NIKKEI 225

    27,810.13
    +300.67 (+1.09%)
     
  • NZD/JPY

    83.4610
    +0.4510 (+0.54%)
     

Be Wary Of Adval Tech Holding (VTX:ADVN) And Its Returns On Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Basically the company is earning less on its investments and it is also reducing its total assets. So after we looked into Adval Tech Holding (VTX:ADVN), the trends above didn't look too great.

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. To calculate this metric for Adval Tech Holding, this is the formula:

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

0.038 = CHF4.9m ÷ (CHF164m - CHF35m) (Based on the trailing twelve months to June 2022).

Therefore, Adval Tech Holding has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Machinery industry average of 16%.

Check out our latest analysis for Adval Tech Holding

roce
roce

In the above chart we have measured Adval Tech Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Adval Tech Holding.

What Does the ROCE Trend For Adval Tech Holding Tell Us?

We are a bit worried about the trend of returns on capital at Adval Tech Holding. To be more specific, the ROCE was 8.7% five years ago, but since then it has dropped noticeably. 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 Adval Tech Holding to turn into a multi-bagger.

The Bottom Line On Adval Tech Holding's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Long term shareholders who've owned the stock over the last five years have experienced a 39% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we've found 2 warning signs for Adval Tech Holding that we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here