Nokian Renkaat Oyj (HEL:TYRES) Will Be Looking To Turn Around Its Returns
If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. 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 Nokian Renkaat Oyj (HEL:TYRES), the trends above didn't look too great.
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. Analysts use this formula to calculate it for Nokian Renkaat Oyj:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0083 = €16m ÷ (€2.6b - €695m) (Based on the trailing twelve months to September 2025).
Thus, Nokian Renkaat Oyj has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 9.4%.
Check out our latest analysis for Nokian Renkaat Oyj
Above you can see how the current ROCE for Nokian Renkaat Oyj 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 Nokian Renkaat Oyj .
How Are Returns Trending?
In terms of Nokian Renkaat Oyj's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 8.4%, 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. 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 Nokian Renkaat Oyj to turn into a multi-bagger.
The Key Takeaway
All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 62% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
One more thing to note, we've identified 2 warning signs with Nokian Renkaat Oyj and understanding them should be part of your investment process.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.