What underlying fundamental trends can indicate that a company might be in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. 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 Bonvests Holdings (SGX:B28), so let's see why.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Bonvests Holdings:

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

0.019 = S$21m ÷ (S$1.3b - S$164m) (Based on the trailing twelve months to December 2023).

Thus, Bonvests Holdings has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 4.5%.

View our latest analysis for Bonvests Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bonvests Holdings' ROCE against it's prior returns. If you're interested in investigating Bonvests Holdings' past further, check out this free graph covering Bonvests Holdings' past earnings, revenue and cash flow.

What Does the ROCE Trend For Bonvests Holdings Tell Us?

In terms of Bonvests Holdings' historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 2.4% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Bonvests Holdings to turn into a multi-bagger.

On a side note, Bonvests Holdings has done well to pay down its current liabilities to 13% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.