What financial metrics can indicate to us that a company is maturing or even 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 indicates the company is producing less profit from its investments and its total assets are decreasing. And from a first read, things don't look too good at Schweiter Technologies (VTX:SWTQ), so let's see why.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Schweiter Technologies is:

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

0.032 = CHF28m ÷ (CHF1.1b - CHF251m) (Based on the trailing twelve months to June 2023).

So, Schweiter Technologies has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Building industry average of 20%.

Check out our latest analysis for Schweiter Technologies

In the above chart we have measured Schweiter Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Schweiter Technologies for free.

So How Is Schweiter Technologies' ROCE Trending?

We are a bit worried about the trend of returns on capital at Schweiter Technologies. Unfortunately the returns on capital have diminished from the 9.5% 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. 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 Schweiter Technologies to turn into a multi-bagger.

The Key Takeaway

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 45% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One more thing, we've spotted 2 warning signs facing Schweiter Technologies that you might find interesting.