Yahoo Finance What These Trends Mean At Immunodiagnostic Systems Holdings (LON:IDH)
Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into Immunodiagnostic Systems Holdings (LON:IDH), we weren't too upbeat about how things were going.
Understanding 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 Immunodiagnostic Systems Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.021 = UK£1.3m ÷ (UK£73m - UK£11m) (Based on the trailing twelve months to March 2020).
Therefore, Immunodiagnostic Systems Holdings has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 7.8%.
Check out our latest analysis for Immunodiagnostic Systems Holdings
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Immunodiagnostic Systems 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?
In terms of Immunodiagnostic Systems Holdings' historical ROCE trend, it isn't fantastic. To be more specific, today's ROCE was 4.7% five years ago but has since fallen to 2.1%. What's equally concerning is that the amount of capital deployed in the business has shrunk by 31% over that same period. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. If these underlying trends continue, we wouldn't be too optimistic going forward.
In Conclusion...
In summary, it's unfortunate that Immunodiagnostic Systems Holdings is shrinking its capital base and also generating lower returns. It should come as no surprise then that the stock has fallen 15% over the last five years, so it looks like investors are recognizing these changes. Unless these trends revert to a more positive trajectory, we would look elsewhere.
On a separate note, we've found 3 warning signs for Immunodiagnostic Systems Holdings you'll probably want to know about.
While Immunodiagnostic Systems 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.
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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