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. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after glancing at the trends within Genesco (NYSE:GCO), we weren't too hopeful.
We've discovered 2 warning signs about Genesco. View them for free.Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Genesco:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.018 = US$17m ÷ (US$1.3b - US$380m) (Based on the trailing twelve months to February 2025).
So, Genesco has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 13%.
See our latest analysis for Genesco
Above you can see how the current ROCE for Genesco compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Genesco .
What Can We Tell From Genesco's ROCE Trend?
We are a bit anxious about the trends of ROCE at Genesco. Unfortunately, returns have declined substantially over the last five years to the 1.8% we see today. What's equally concerning is that the amount of capital deployed in the business has shrunk by 28% over that same period. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.
What We Can Learn From Genesco's ROCE
In summary, it's unfortunate that Genesco is shrinking its capital base and also generating lower returns. And long term shareholders have watched their investments stay flat over the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Genesco (of which 1 is significant!) that you should know about.
While Genesco isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.