John Bean Technologies (NYSE:JBT) May Have Issues Allocating Its Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at John Bean Technologies (NYSE:JBT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on John Bean Technologies is:

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

0.093 = US$183m ÷ (US$2.6b - US$618m) (Based on the trailing twelve months to March 2023).

So, John Bean Technologies has an ROCE of 9.3%. In absolute terms, that's a low return but it's around the Machinery industry average of 12%.

Check out our latest analysis for John Bean Technologies

Above you can see how the current ROCE for John Bean Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering John Bean Technologies here for free.

SWOT Analysis for John Bean Technologies

What The Trend Of ROCE Can Tell Us

In terms of John Bean Technologies' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 9.3% from 15% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a related note, John Bean Technologies has decreased its current liabilities to 24% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On John Bean Technologies' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that John Bean Technologies is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 19% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

If you'd like to know about the risks facing John Bean Technologies, we've discovered 1 warning sign that you should be aware of.

While John Bean Technologies may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.