Investors Could Be Concerned With Slavneft-Yaroslavnefteorgsintez's (MCX:JNOS) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Slavneft-Yaroslavnefteorgsintez (MCX:JNOS) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Slavneft-Yaroslavnefteorgsintez is:

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

0.083 = ₽8.7b ÷ (₽124b - ₽19b) (Based on the trailing twelve months to June 2020).

Thus, Slavneft-Yaroslavnefteorgsintez has an ROCE of 8.3%. On its own that's a low return, but compared to the average of 6.6% generated by the Oil and Gas industry, it's much better.

View our latest analysis for Slavneft-Yaroslavnefteorgsintez

Historical performance is a great place to start when researching a stock so above you can see the gauge for Slavneft-Yaroslavnefteorgsintez's ROCE against it's prior returns. If you're interested in investigating Slavneft-Yaroslavnefteorgsintez's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Slavneft-Yaroslavnefteorgsintez, we didn't gain much confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 8.3%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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 Slavneft-Yaroslavnefteorgsintez's ROCE

To conclude, we've found that Slavneft-Yaroslavnefteorgsintez is reinvesting in the business, but returns have been falling. Since the stock has declined 17% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Slavneft-Yaroslavnefteorgsintez has the makings of a multi-bagger.

One more thing to note, we've identified 2 warning signs with Slavneft-Yaroslavnefteorgsintez and understanding them should be part of your investment process.

While Slavneft-Yaroslavnefteorgsintez 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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