Yahoo Finance Returns On Capital At James Cropper (LON:CRPR) Have Stalled
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating James Cropper (LON:CRPR), we don't think it's current trends fit the mold of a multi-bagger.
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. To calculate this metric for James Cropper, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.088 = UK£7.0m ÷ (UK£97m - UK£18m) (Based on the trailing twelve months to September 2023).
So, James Cropper has an ROCE of 8.8%. Ultimately, that's a low return and it under-performs the Forestry industry average of 12%.
See our latest analysis for James Cropper
In the above chart we have measured James Cropper'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 James Cropper here for free.
What Does the ROCE Trend For James Cropper Tell Us?
In terms of James Cropper's historical ROCE trend, it doesn't exactly demand attention. The company has employed 52% more capital in the last five years, and the returns on that capital have remained stable at 8.8%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
In Conclusion...
As we've seen above, James Cropper's returns on capital haven't increased but it is reinvesting in the business. And in the last five years, the stock has given away 30% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
If you want to continue researching James Cropper, you might be interested to know about the 1 warning sign that our analysis has discovered.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
