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When researching a stock for investment, what can tell us that the company is in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. In light of that, from a first glance at James Fisher and Sons (LON:FSJ), we've spotted some signs that it could be struggling, so let's investigate.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on James Fisher and Sons is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.052 = UK£21m ÷ (UK£636m - UK£223m) (Based on the trailing twelve months to June 2023).
Therefore, James Fisher and Sons has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 8.8%.
See our latest analysis for James Fisher and Sons
Above you can see how the current ROCE for James Fisher and Sons compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From James Fisher and Sons' ROCE Trend?
There is reason to be cautious about James Fisher and Sons, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 12% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on James Fisher and Sons becoming one if things continue as they have.
Our Take On James Fisher and Sons' ROCE
In summary, it's unfortunate that James Fisher and Sons is generating lower returns from the same amount of capital. Unsurprisingly then, the stock has dived 82% over the last five years, so investors are recognizing these changes and don't like the company's prospects. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.