Here's What To Make Of Jungfraubahn Holding's (VTX:JFN) Decelerating Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at Jungfraubahn Holding (VTX:JFN), it didn't seem to tick all of these boxes.

What Is 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. To calculate this metric for Jungfraubahn Holding, this is the formula:

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

0.071 = CHF55m ÷ (CHF843m - CHF72m) (Based on the trailing twelve months to December 2022).

Thus, Jungfraubahn Holding has an ROCE of 7.1%. On its own, that's a low figure but it's around the 7.8% average generated by the Transportation industry.

Check out our latest analysis for Jungfraubahn Holding

Above you can see how the current ROCE for Jungfraubahn Holding 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 report on analyst forecasts for the company.

What Does the ROCE Trend For Jungfraubahn Holding Tell Us?

There are better returns on capital out there than what we're seeing at Jungfraubahn Holding. The company has consistently earned 7.1% for the last five years, and the capital employed within the business has risen 25% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

In conclusion, Jungfraubahn Holding has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 8.2% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Jungfraubahn Holding does have some risks though, and we've spotted 1 warning sign for Jungfraubahn Holding that you might be interested in.

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.