The Returns At James Cropper (LON:CRPR) Aren't Growing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think James Cropper (LON:CRPR) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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).

Thus, James Cropper has an ROCE of 8.8%. Even though it's in line with the industry average of 9.5%, it's still a low return by itself.

View 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 for free.

What The Trend Of ROCE Can 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...

In conclusion, James Cropper has been investing more capital into the business, but returns on that capital haven't increased. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 74% over the last five years. 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.

On a final note, we've found 3 warning signs for James Cropper that we think you should be aware of.

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.