To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. Having said that, after a brief look, MIND C.T.I (NASDAQ:MNDO) we aren't filled with optimism, but let's investigate further.

Return On Capital Employed (ROCE): What Is It?

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 MIND C.T.I:

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

0.16 = US$4.2m ÷ (US$30m - US$3.9m) (Based on the trailing twelve months to September 2024).

Therefore, MIND C.T.I has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Software industry.

See our latest analysis for MIND C.T.I

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how MIND C.T.I has performed in the past in other metrics, you can view this free graph of MIND C.T.I's past earnings, revenue and cash flow.

What Does the ROCE Trend For MIND C.T.I Tell Us?

We are a bit worried about the trend of returns on capital at MIND C.T.I. Unfortunately the returns on capital have diminished from the 23% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 MIND C.T.I to turn into a multi-bagger.

The Bottom Line On MIND C.T.I's ROCE

In summary, it's unfortunate that MIND C.T.I is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 36% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

On a final note, we found 3 warning signs for MIND C.T.I (2 don't sit too well with us) you should be aware of.

While MIND C.T.I 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.