Is Caxton and CTP Publishers and Printers (JSE:CAT) Shrinking?

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after we looked into Caxton and CTP Publishers and Printers (JSE:CAT), the trends above didn't look too great.

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. To calculate this metric for Caxton and CTP Publishers and Printers, this is the formula:

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

0.028 = R155m ÷ (R6.5b - R901m) (Based on the trailing twelve months to June 2020).

Thus, Caxton and CTP Publishers and Printers has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Media industry average of 8.6%.

View our latest analysis for Caxton and CTP Publishers and Printers

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'd like to look at how Caxton and CTP Publishers and Printers has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Caxton and CTP Publishers and Printers' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 9.1% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 Caxton and CTP Publishers and Printers becoming one if things continue as they have.

The Key Takeaway

In summary, it's unfortunate that Caxton and CTP Publishers and Printers is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 39% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Caxton and CTP Publishers and Printers does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is significant...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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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