Yahoo Finance Cooper-Standard Holdings (NYSE:CPS) Will Be Looking To Turn Around Its Returns
When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after we looked into Cooper-Standard Holdings (NYSE:CPS), the trends above didn't look too great.
Understanding Return On Capital Employed (ROCE)
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. Analysts use this formula to calculate it for Cooper-Standard Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.066 = US$78m ÷ (US$1.8b - US$659m) (Based on the trailing twelve months to March 2024).
Thus, Cooper-Standard Holdings has an ROCE of 6.6%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 12%.
See our latest analysis for Cooper-Standard Holdings
Above you can see how the current ROCE for Cooper-Standard Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Cooper-Standard Holdings .
How Are Returns Trending?
The trend of ROCE at Cooper-Standard Holdings is showing some signs of weakness. Unfortunately, returns have declined substantially over the last five years to the 6.6% we see today. In addition to that, Cooper-Standard Holdings is now employing 37% less capital than it was five years ago. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.
Our Take On Cooper-Standard Holdings' ROCE
In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. We expect this has contributed to the stock plummeting 73% during the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
Cooper-Standard Holdings does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...
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.
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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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