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To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. 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. Basically the company is earning less on its investments and it is also reducing its total assets. 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.
What Is Return On Capital Employed (ROCE)?
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)
0.071 = UK£26m ÷ (UK£558m - UK£189m) (Based on the trailing twelve months to December 2023).
Therefore, James Fisher and Sons has an ROCE of 7.1%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 12%.
See our latest analysis for James Fisher and Sons
In the above chart we have measured James Fisher and Sons' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for James Fisher and Sons .
What The Trend Of ROCE Can Tell Us
In terms of James Fisher and Sons' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 13% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. 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.
In Conclusion...
In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. This could explain why the stock has sunk a total of 83% in the last five years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.
James Fisher and Sons does have some risks though, and we've spotted 1 warning sign for James Fisher and Sons that you might be interested in.