What financial metrics can indicate to us that a company is maturing or even in decline? 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 NAHL Group (LON:NAH), so let's see why.

What Is Return On Capital Employed (ROCE)?

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 NAHL Group:

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

0.058 = UK￡4.2m ÷ (UK￡92m - UK￡20m) (Based on the trailing twelve months to December 2023).

Thus, NAHL Group has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Media industry average of 9.1%.

Check out our latest analysis for NAHL Group

Above you can see how the current ROCE for NAHL Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering NAHL Group for free.

What The Trend Of ROCE Can Tell Us

In terms of NAHL Group's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 12%, however they're now substantially lower than that as we saw above. 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 NAHL Group to turn into a multi-bagger.

What We Can Learn From NAHL Group's ROCE

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 haven't taken kindly to these developments, since the stock has declined 56% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Like most companies, NAHL Group does come with some risks, and we've found 2 warning signs that you should be aware of.

While NAHL Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.