Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. With that in mind, the ROCE of Jadroplov d.d (ZGSE:JDPL) looks great, so lets see what the trend can tell us.
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. Analysts use this formula to calculate it for Jadroplov d.d:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.25 = Kn104m ÷ (Kn517m - Kn96m) (Based on the trailing twelve months to June 2022).
Thus, Jadroplov d.d has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Shipping industry average of 11%.
See our latest analysis for Jadroplov d.d
Historical performance is a great place to start when researching a stock so above you can see the gauge for Jadroplov d.d's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Jadroplov d.d, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
It's great to see that Jadroplov d.d has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 25% on their capital employed. Additionally, the business is utilizing 38% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.
Our Take On Jadroplov d.d's ROCE
From what we've seen above, Jadroplov d.d has managed to increase it's returns on capital all the while reducing it's capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 100% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.
One final note, you should learn about the 4 warning signs we've spotted with Jadroplov d.d (including 1 which shouldn't be ignored) .
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.
About ZGSE:JDPL
Jadroplov d.d
Engages in the international maritime transportation of goods with its own tramp ships.
Slightly overvalued with imperfect balance sheet.
