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Returns On Capital At Ark Restaurants (NASDAQ:ARKR) Paint A Concerning Picture

Simply Wall St · 04/09/2025 10:02

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. And from a first read, things don't look too good at Ark Restaurants (NASDAQ:ARKR), so let's see why.

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Understanding 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. The formula for this calculation on Ark Restaurants is:

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

0.016 = US$2.1m ÷ (US$155m - US$25m) (Based on the trailing twelve months to December 2024).

Therefore, Ark Restaurants has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 10.0%.

Check out our latest analysis for Ark Restaurants

roce
NasdaqGM:ARKR Return on Capital Employed April 9th 2025

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ark Restaurants' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Ark Restaurants .

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Ark Restaurants. To be more specific, the ROCE was 6.8% five years ago, but since then it has dropped noticeably. 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 Ark Restaurants 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. It should come as no surprise then that the stock has fallen 19% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we found 2 warning signs for Ark Restaurants (1 can't be ignored) you should be aware of.

While Ark Restaurants isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.