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. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after we looked into Edgewell Personal Care (NYSE:EPC), the trends above didn't look too great.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Edgewell Personal Care:

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

0.083 = US$262m ÷ (US$3.7b - US$535m) (Based on the trailing twelve months to June 2024).

Therefore, Edgewell Personal Care has an ROCE of 8.3%. In absolute terms, that's a low return and it also under-performs the Personal Products industry average of 15%.

In the above chart we have measured Edgewell Personal Care'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 Edgewell Personal Care .

How Are Returns Trending?

In terms of Edgewell Personal Care's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 12% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Edgewell Personal Care becoming one if things continue as they have.

What We Can Learn From Edgewell Personal Care's ROCE

In summary, it's unfortunate that Edgewell Personal Care is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 2.8% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you'd like to know more about Edgewell Personal Care, we've spotted 3 warning signs, and 1 of them is significant.

While Edgewell Personal Care may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.