Investors Could Be Concerned With Jewett-Cameron Trading's (NASDAQ:JCTC.F) Returns On Capital

What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after we looked into Jewett-Cameron Trading (NASDAQ:JCTC.F), the trends above didn't look too great.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Jewett-Cameron Trading:

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

0.0053 = US$132k ÷ (US$29m - US$4.1m) (Based on the trailing twelve months to February 2024).

Therefore, Jewett-Cameron Trading has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Building industry average of 17%.

View our latest analysis for Jewett-Cameron Trading

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're interested in investigating Jewett-Cameron Trading's past further, check out this free graph covering Jewett-Cameron Trading's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Jewett-Cameron Trading's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 17% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Jewett-Cameron Trading becoming one if things continue as they have.

In Conclusion...

In summary, it's unfortunate that Jewett-Cameron Trading is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 41% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you'd like to know more about Jewett-Cameron Trading, we've spotted 3 warning signs, and 1 of them can't be ignored.

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.

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