Yahoo Finance Jura Energy (CVE:JEC) Could Be Struggling To Allocate Capital
If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after we looked into Jura Energy (CVE:JEC), the trends above didn't look too great.
What Is Return On Capital Employed (ROCE)?
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)
0.052 = US$1.2m ÷ (US$42m - US$19m) (Based on the trailing twelve months to June 2022).
Therefore, Jura Energy has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 18%.
Check out our latest analysis for Jura Energy
Historical performance is a great place to start when researching a stock so above you can see the gauge for Jura Energy's ROCE against it's prior returns. If you're interested in investigating Jura Energy's past further, check out this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
In terms of Jura Energy's historical ROCE trend, it isn't fantastic. To be more specific, today's ROCE was 12% five years ago but has since fallen to 5.2%. On top of that, the business is utilizing 27% less capital within its operations. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.
On a side note, Jura Energy's current liabilities are still rather high at 46% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Key Takeaway
In summary, it's unfortunate that Jura Energy is shrinking its capital base and also generating lower returns. Unsurprisingly then, the stock has dived 73% over the last five years, so investors are recognizing these changes and don't like the company's prospects. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
Like most companies, Jura Energy does come with some risks, and we've found 3 warning signs that you should be aware of.
While Jura Energy 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.
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