Jastrzebska Spólka Weglowa (WSE:JSW) May Have Issues Allocating Its Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Jastrzebska Spólka Weglowa (WSE:JSW) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Jastrzebska Spólka Weglowa:

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

0.018 = zł366m ÷ (zł26b - zł5.0b) (Based on the trailing twelve months to March 2024).

So, Jastrzebska Spólka Weglowa has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 7.9%.

Check out our latest analysis for Jastrzebska Spólka Weglowa

In the above chart we have measured Jastrzebska Spólka Weglowa'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 Jastrzebska Spólka Weglowa for free.

What Does the ROCE Trend For Jastrzebska Spólka Weglowa Tell Us?

On the surface, the trend of ROCE at Jastrzebska Spólka Weglowa doesn't inspire confidence. To be more specific, ROCE has fallen from 15% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On Jastrzebska Spólka Weglowa's ROCE

In summary, we're somewhat concerned by Jastrzebska Spólka Weglowa's diminishing returns on increasing amounts of capital. In spite of that, the stock has delivered a 20% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Jastrzebska Spólka Weglowa could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for JSW on our platform quite valuable.

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.