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. So after glancing at the trends within Orbit Garant Drilling (TSE:OGD), we weren't too hopeful.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Orbit Garant Drilling:

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

0.016 = CA$1.5m ÷ (CA$131m - CA$36m) (Based on the trailing twelve months to March 2024).

Thus, Orbit Garant Drilling has an ROCE of 1.6%. On its own that's a low return, but compared to the average of 1.0% generated by the Metals and Mining industry, it's much better.

Check out our latest analysis for Orbit Garant Drilling

Above you can see how the current ROCE for Orbit Garant Drilling compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Orbit Garant Drilling for free.

So How Is Orbit Garant Drilling's ROCE Trending?

We are a bit worried about the trend of returns on capital at Orbit Garant Drilling. About five years ago, returns on capital were 3.0%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Orbit Garant Drilling becoming one if things continue as they have.

In Conclusion...

In summary, it's unfortunate that Orbit Garant Drilling is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 31% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.