ComfortDelGro (SGX:C52) May Have Issues Allocating Its Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? 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 the company is producing less profit from its investments and its total assets are decreasing. And from a first read, things don't look too good at ComfortDelGro (SGX:C52), so let's see why.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on ComfortDelGro is:

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

0.074 = S$266m ÷ (S$4.7b - S$1.1b) (Based on the trailing twelve months to December 2023).

So, ComfortDelGro has an ROCE of 7.4%. In absolute terms, that's a low return but it's around the Transportation industry average of 6.4%.

Check out our latest analysis for ComfortDelGro

roce

In the above chart we have measured ComfortDelGro's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for ComfortDelGro .

How Are Returns Trending?

There is reason to be cautious about ComfortDelGro, given the returns are trending downwards. About five years ago, returns on capital were 11%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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.

Our Take On ComfortDelGro's ROCE

In summary, it's unfortunate that ComfortDelGro is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 34% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

ComfortDelGro does have some risks though, and we've spotted 1 warning sign for ComfortDelGro that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.