Christie Group's (LON:CTG) Returns On Capital Tell Us There Is Reason To Feel Uneasy
We are experiencing some temporary issues. The market data on this page is currently delayed. Please bear with us as we address this and restore your personalized lists.
If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount 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. On that note, looking into Christie Group (LON:CTG), we weren't too upbeat about how things were going.
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 Christie Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.014 = UK£184k ÷ (UK£30m - UK£17m) (Based on the trailing twelve months to June 2024).
So, Christie Group has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 17%.
Check out our latest analysis for Christie Group
In the above chart we have measured Christie Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Christie Group .
The trend of ROCE at Christie Group is showing some signs of weakness. Unfortunately, returns have declined substantially over the last five years to the 1.4% we see today. On top of that, the business is utilizing 27% less capital within its operations. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.
Another thing to note, Christie Group has a high ratio of current liabilities to total assets of 58%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Investors must expect better things on the horizon though because the stock has risen 25% 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.
If you want to know some of the risks facing Christie Group we've found 3 warning signs (2 are a bit concerning!) that you should be aware of before investing here.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.
Sign in to access your portfolio
EMEA Tribune is not responsible for this news, news agencies have provided us this news.
Follow us on our WhatsApp channel here .
