Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. In light of that, from a first glance at ComfortDelGro (SGX:C52), we've spotted some signs that it could be struggling, so let's investigate.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on ComfortDelGro is:

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

0.075 = S$288m ÷ (S$5.1b - S$1.3b) (Based on the trailing twelve months to June 2024).

So, ComfortDelGro has an ROCE of 7.5%.  Even though it's in line with the industry average of 6.5%, it's still a low return by itself.

View our latest analysis for ComfortDelGro SGX:C52 Return on Capital Employed February 11th 2025

Above you can see how the current ROCE for ComfortDelGro 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 ComfortDelGro  for free.

The Trend Of ROCE

We are a bit worried about the trend of returns on capital at ComfortDelGro. To be more specific, the ROCE was 11% 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. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect ComfortDelGro to turn into a multi-bagger.

The Bottom Line On ComfortDelGro's ROCE

In summary, it's unfortunate that ComfortDelGro is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 18% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we've found  1 warning sign for ComfortDelGro that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this freelist of companies with good balance sheets and impressive returns on equity.

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This 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.

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