Returns On Capital Signal Tricky Times Ahead For Jadranski naftovod d.d (ZGSE:JNAF)

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. In light of that, when we looked at Jadranski naftovod d.d (ZGSE:JNAF) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Jadranski naftovod d.d is:

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

0.066 = Kn321m ÷ (Kn4.9b - Kn45m) (Based on the trailing twelve months to December 2021).

So, Jadranski naftovod d.d has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 8.9%.

View our latest analysis for Jadranski naftovod d.d

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Jadranski naftovod d.d, check out these free graphs here.

What Does the ROCE Trend For Jadranski naftovod d.d Tell Us?

On the surface, the trend of ROCE at Jadranski naftovod d.d doesn't inspire confidence. Around five years ago the returns on capital were 8.5%, but since then they've fallen to 6.6%. However it looks like Jadranski naftovod d.d might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Jadranski naftovod d.d's ROCE

To conclude, we've found that Jadranski naftovod d.d is reinvesting in the business, but returns have been falling. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a separate note, we've found 1 warning sign for Jadranski naftovod d.d you'll probably want to know about.

While Jadranski naftovod d.d isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.