When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we’ll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. In light of that, from a first glance at CSC Holdings (SGX:C06), we’ve spotted some signs that it could be struggling, so let’s investigate.
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for CSC Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.038 = S$6.5m ÷ (S$396m – S$226m) (Based on the trailing twelve months to March 2025).
Thus, CSC Holdings has an ROCE of 3.8%. In absolute terms, that’s a low return and it also under-performs the Construction industry average of 10%.
View our latest analysis for CSC Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for CSC Holdings’ ROCE against it’s prior returns. If you’d like to look at how CSC Holdings has performed in the past in other metrics, you can view this free graph of CSC Holdings’ past earnings, revenue and cash flow.
There is reason to be cautious about CSC Holdings, given the returns are trending downwards. To be more specific, the ROCE was 7.0% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 CSC Holdings to turn into a multi-bagger.
On a side note, CSC Holdings’ current liabilities are still rather high at 57% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it’s not necessarily a bad thing, it can be beneficial if this ratio is lower.
