What underlying fundamental trends can indicate that a company might be in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. On that note, looking into C.H. Robinson Worldwide (NASDAQ:CHRW), we weren't too upbeat about how things were going.

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 C.H. Robinson Worldwide, this is the formula:

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

0.19 = US$625m ÷ (US$5.6b - US$2.2b) (Based on the trailing twelve months to September 2024).

Therefore, C.H. Robinson Worldwide has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 13% generated by the Logistics industry.

In the above chart we have measured C.H. Robinson Worldwide's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering C.H. Robinson Worldwide for free.

What Can We Tell From C.H. Robinson Worldwide's ROCE Trend?

In terms of C.H. Robinson Worldwide's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 28% that they were earning five years ago. 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. If these trends continue, we wouldn't expect C.H. Robinson Worldwide to turn into a multi-bagger.

What We Can Learn From C.H. Robinson Worldwide's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 64% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

C.H. Robinson Worldwide does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

While C.H. Robinson Worldwide 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.