Yahoo Finance Investors Shouldn't Overlook Judges Scientific's (LON:JDG) Impressive Returns On Capital
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Judges Scientific (LON:JDG) we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
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 Judges Scientific:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = UK£15m ÷ (UK£89m - UK£27m) (Based on the trailing twelve months to December 2021).
Thus, Judges Scientific has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.
See our latest analysis for Judges Scientific
In the above chart we have measured Judges Scientific'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 Judges Scientific here for free.
What Can We Tell From Judges Scientific's ROCE Trend?
We like the trends that we're seeing from Judges Scientific. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. The amount of capital employed has increased too, by 52%. So we're very much inspired by what we're seeing at Judges Scientific thanks to its ability to profitably reinvest capital.
In Conclusion...
To sum it up, Judges Scientific has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 332% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
One more thing, we've spotted 1 warning sign facing Judges Scientific that you might find interesting.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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