Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. And from a first read, things don't look too good at ecoWise Holdings (Catalist:5CT), so let's see why.
We've discovered 2 warning signs about ecoWise Holdings. View them for free.
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. To calculate this metric for ecoWise Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0036 = S$77k ÷ (S$32m - S$11m) (Based on the trailing twelve months to January 2025).
Thus, ecoWise Holdings has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 5.5%.
See our latest analysis for ecoWise 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of ecoWise Holdings.
How Are Returns Trending?
In terms of ecoWise Holdings' historical ROCE trend, it isn't fantastic. To be more specific, today's ROCE was 3.0% five years ago but has since fallen to 0.4%. On top of that, the business is utilizing 56% less capital within its operations. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.
The Bottom Line
In summary, it's unfortunate that ecoWise Holdings is shrinking its capital base and also generating lower returns. It should come as no surprise then that the stock has fallen 26% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.
ecoWise Holdings does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
While ecoWise 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.
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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.