Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. And from a first read, things don't look too good at Columbia Sportswear (NASDAQ:COLM), so let's see why.

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. To calculate this metric for Columbia Sportswear, this is the formula:

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

0.13 = US$294m ÷ (US$2.8b - US$544m) (Based on the trailing twelve months to June 2024).

Thus, Columbia Sportswear has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.

Above you can see how the current ROCE for Columbia Sportswear 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 Columbia Sportswear .

What Does the ROCE Trend For Columbia Sportswear Tell Us?

In terms of Columbia Sportswear's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 19%, 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. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Columbia Sportswear to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that Columbia Sportswear is generating lower returns from the same amount of capital. And long term shareholders have watched their investments stay flat over the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Like most companies, Columbia Sportswear does come with some risks, and we've found 1 warning sign that you should be aware of.

While Columbia Sportswear isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.