To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. 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. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. And from a first read, things don't look too good at CSC Steel Holdings Berhad (KLSE:CSCSTEL), so let's see why.

What Is 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. Analysts use this formula to calculate it for CSC Steel Holdings Berhad:

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

0.016 = RM14m ÷ (RM939m - RM60m) (Based on the trailing twelve months to December 2022).

So, CSC Steel Holdings Berhad has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 7.7%.

Check out our latest analysis for CSC Steel Holdings Berhad

Above you can see how the current ROCE for CSC Steel Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From CSC Steel Holdings Berhad's ROCE Trend?

We are a bit worried about the trend of returns on capital at CSC Steel Holdings Berhad. Unfortunately the returns on capital have diminished from the 5.5% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 CSC Steel Holdings Berhad to turn into a multi-bagger.

The Bottom Line

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors must expect better things on the horizon though because the stock has risen 13% in 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.