Yahoo Finance Is This A Sign of Things To Come At McCoy Global (TSE:MCB)?
What underlying fundamental trends can indicate that a company might be in decline? 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 indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after we looked into McCoy Global (TSE:MCB), the trends above didn't look too great.
What is 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 McCoy Global:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.05 = CA$2.6m ÷ (CA$63m - CA$11m) (Based on the trailing twelve months to June 2020).
Thus, McCoy Global has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 11%.
View our latest analysis for McCoy Global
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're interested in investigating McCoy Global's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For McCoy Global Tell Us?
In terms of McCoy Global's historical ROCE trend, it isn't fantastic. To be more specific, today's ROCE was 9.7% five years ago but has since fallen to 5.0%. On top of that, the business is utilizing 53% less capital within its operations. The fact that both are shrinking is an indication that the business is going through some tough times. 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.
The Key Takeaway
To see McCoy Global reducing the capital employed in the business in tandem with diminishing returns, is concerning. Unsurprisingly then, the stock has dived 84% over the last five years, so investors are recognizing these changes and don't like the company's prospects. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
McCoy Global does have some risks though, and we've spotted 1 warning sign for McCoy Global that you might be interested in.
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.
This article by Simply Wall St is general in nature. 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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