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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. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within StarHub (SGX:CC3), we weren't too hopeful.
Understanding Return On Capital Employed (ROCE)
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 StarHub is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = S$225m ÷ (S$3.1b - S$1.4b) (Based on the trailing twelve months to December 2024).
Thus, StarHub has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Wireless Telecom industry average of 11%.
See our latest analysis for StarHub
Above you can see how the current ROCE for StarHub compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for StarHub .
The Trend Of ROCE
In terms of StarHub's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 17%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 StarHub to turn into a multi-bagger.
On a separate but related note, it's important to know that StarHub has a current liabilities to total assets ratio of 44%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.