Yahoo Finance Robinson (LON:RBN) Could Be Struggling To Allocate Capital
What underlying fundamental trends can indicate that a company might be in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. In light of that, from a first glance at Robinson (LON:RBN), we've spotted some signs that it could be struggling, so let's investigate.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Robinson, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.063 = UK£1.9m ÷ (UK£39m - UK£9.8m) (Based on the trailing twelve months to December 2020).
Therefore, Robinson has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Packaging industry average of 11%.
See our latest analysis for Robinson
Above you can see how the current ROCE for Robinson compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Robinson here for free.
So How Is Robinson's ROCE Trending?
In terms of Robinson's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 9.3% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Robinson becoming one if things continue as they have.
Our Take On Robinson's ROCE
In summary, it's unfortunate that Robinson is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 9.9% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.
One more thing, we've spotted 2 warning signs facing Robinson that you might find interesting.
While Robinson 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.
This article by Simply Wall St is general in nature. 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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