What underlying fundamental trends can indicate that a company might be in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. In light of that, from a first glance at Mineralbrunnen Überkingen-Teinach GmbH KGaA (FRA:MUT), we've spotted some signs that it could be struggling, so let's investigate.
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For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Mineralbrunnen Überkingen-Teinach GmbH KGaA, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.079 = €9.3m ÷ (€143m - €25m) (Based on the trailing twelve months to December 2024).
Thus, Mineralbrunnen Überkingen-Teinach GmbH KGaA has an ROCE of 7.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.9%.
See our latest analysis for Mineralbrunnen Überkingen-Teinach GmbH KGaA
Historical performance is a great place to start when researching a stock so above you can see the gauge for Mineralbrunnen Überkingen-Teinach GmbH KGaA's ROCE against it's prior returns. If you're interested in investigating Mineralbrunnen Überkingen-Teinach GmbH KGaA's past further, check out this free graph covering Mineralbrunnen Überkingen-Teinach GmbH KGaA's past earnings, revenue and cash flow.
We are a bit worried about the trend of returns on capital at Mineralbrunnen Überkingen-Teinach GmbH KGaA. About five years ago, returns on capital were 11%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 Mineralbrunnen Überkingen-Teinach GmbH KGaA to turn into a multi-bagger.