In This Article:
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. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after we looked into NORMA Group (ETR:NOEJ), the trends above didn't look too great.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for NORMA Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.063 = €76m ÷ (€1.4b - €243m) (Based on the trailing twelve months to September 2024).
Thus, NORMA Group has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 8.9%.
View our latest analysis for NORMA Group
Above you can see how the current ROCE for NORMA Group 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 analyst report for NORMA Group .
The Trend Of ROCE
We are a bit worried about the trend of returns on capital at NORMA Group. To be more specific, the ROCE was 9.5% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on NORMA Group becoming one if things continue as they have.
The Bottom Line
In summary, it's unfortunate that NORMA Group is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 10% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
On a final note, we found 2 warning signs for NORMA Group (1 makes us a bit uncomfortable) you should be aware of.