Returns on Capital Paint A Bright Future For Jura Energy (CVE:JEC)
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Jura Energy (CVE:JEC) looks great, so lets see what the trend can tell us.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Jura Energy is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = US$9.5m ÷ (US$63m - US$23m) (Based on the trailing twelve months to March 2021).
So, Jura Energy has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 1.9%.
View our latest analysis for Jura Energy
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 want to delve into the historical earnings, revenue and cash flow of Jura Energy, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
Jura Energy has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 24% which is a sight for sore eyes. In addition to that, Jura Energy is employing 48% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Bottom Line On Jura Energy's ROCE
To the delight of most shareholders, Jura Energy has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
Like most companies, Jura Energy does come with some risks, and we've found 2 warning signs that you should be aware of.
Jura Energy is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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