Returns On Capital At James Cropper (LON:CRPR) Have Hit The Brakes

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at James Cropper (LON:CRPR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on James Cropper is:

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

0.072 = UK£4.3m ÷ (UK£84m - UK£25m) (Based on the trailing twelve months to September 2020).

Therefore, James Cropper has an ROCE of 7.2%. On its own, that's a low figure but it's around the 6.4% average generated by the Forestry industry.

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.

So How Is James Cropper's ROCE Trending?

The returns on capital haven't changed much for James Cropper in recent years. The company has consistently earned 7.2% for the last five years, and the capital employed within the business has risen 47% in that time. 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.

The Bottom Line On James Cropper's ROCE

In conclusion, James Cropper has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 58% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching James Cropper, you might be interested to know about the 1 warning sign that our analysis has discovered.

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