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Yahoo
02-06-2025
- Business
- Yahoo
Capital Allocation Trends At InnoTek (SGX:M14) Aren't Ideal
When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. On that note, looking into InnoTek (SGX:M14), we weren't too upbeat about how things were going. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for InnoTek, this is the formula: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.012 = S$2.3m ÷ (S$263m - S$77m) (Based on the trailing twelve months to December 2024). Therefore, InnoTek has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Machinery industry average of 4.4%. View our latest analysis for InnoTek Historical performance is a great place to start when researching a stock so above you can see the gauge for InnoTek's ROCE against it's prior returns. If you're interested in investigating InnoTek's past further, check out this free graph covering InnoTek's past earnings, revenue and cash flow. There is reason to be cautious about InnoTek, given the returns are trending downwards. To be more specific, the ROCE was 7.2% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 InnoTek becoming one if things continue as they have. In summary, it's unfortunate that InnoTek is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 13% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere. One more thing: We've identified 2 warning signs with InnoTek (at least 1 which is significant) , and understanding them would certainly be useful. While InnoTek 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. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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. Sign in to access your portfolio
Yahoo
02-06-2025
- Business
- Yahoo
Capital Allocation Trends At InnoTek (SGX:M14) Aren't Ideal
When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. On that note, looking into InnoTek (SGX:M14), we weren't too upbeat about how things were going. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for InnoTek, this is the formula: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.012 = S$2.3m ÷ (S$263m - S$77m) (Based on the trailing twelve months to December 2024). Therefore, InnoTek has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Machinery industry average of 4.4%. View our latest analysis for InnoTek Historical performance is a great place to start when researching a stock so above you can see the gauge for InnoTek's ROCE against it's prior returns. If you're interested in investigating InnoTek's past further, check out this free graph covering InnoTek's past earnings, revenue and cash flow. There is reason to be cautious about InnoTek, given the returns are trending downwards. To be more specific, the ROCE was 7.2% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 InnoTek becoming one if things continue as they have. In summary, it's unfortunate that InnoTek is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 13% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere. One more thing: We've identified 2 warning signs with InnoTek (at least 1 which is significant) , and understanding them would certainly be useful. While InnoTek 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. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
08-05-2025
- Business
- Yahoo
Samuel Heath & Sons (LON:HSM) Will Be Hoping To Turn Its Returns On Capital Around
If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? 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 reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. In light of that, from a first glance at Samuel Heath & Sons (LON:HSM), we've spotted some signs that it could be struggling, so let's investigate. Our free stock report includes 2 warning signs investors should be aware of before investing in Samuel Heath & Sons. Read for free now. Return On Capital Employed (ROCE): What Is It? 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 Samuel Heath & Sons, this is the formula: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.063 = UK£843k ÷ (UK£15m - UK£1.6m) (Based on the trailing twelve months to September 2024). Therefore, Samuel Heath & Sons has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Building industry average of 13%. Check out our latest analysis for Samuel Heath & Sons AIM:HSM Return on Capital Employed May 8th 2025 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'd like to look at how Samuel Heath & Sons has performed in the past in other metrics, you can view this free graph of Samuel Heath & Sons' past earnings, revenue and cash flow. How Are Returns Trending? We are a bit worried about the trend of returns on capital at Samuel Heath & Sons. Unfortunately the returns on capital have diminished from the 10% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Samuel Heath & Sons becoming one if things continue as they have. Our Take On Samuel Heath & Sons' 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. Yet despite these concerning fundamentals, the stock has performed strongly with a 43% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.
