James Cropper (LON:CRPR) Has Some Difficulty Using Its Capital Effectively

What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount 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. Having said that, after a brief look, James Cropper (LON:CRPR) we aren't filled with optimism, but let's investigate further.

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What Is Return On Capital Employed (ROCE)?

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)

0.034 = UK£2.0m ÷ (UK£77m - UK£19m) (Based on the trailing twelve months to March 2025).

Thus, James Cropper has an ROCE of 3.4%. Ultimately, that's a low return and it under-performs the Forestry industry average of 6.6%.

See our latest analysis for James Cropper

Above you can see how the current ROCE for James Cropper 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 James Cropper .

How Are Returns Trending?

In terms of James Cropper's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 10%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 James Cropper to turn into a multi-bagger.

The Bottom Line On James Cropper's ROCE

In summary, it's unfortunate that James Cropper is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 69% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing, we've spotted 2 warning signs facing James Cropper that you might find interesting.

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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.