When delving into the realm of stock investment, identifying signals of a company’s decline is paramount. One common indicator lies in the diminishing returns on capital employed (ROCE) coupled with a reduction in the overall capital employed. Such a scenario suggests not only decreased investment but also a decline in profitability on invested capital. Upon initial examination, Dow Jones (NYSE:DOW) doesn’t inspire much optimism; however, a deeper investigation is warranted.
What Does Return On Capital Employed (ROCE) Signify?
For those unfamiliar with ROCE, it serves as a metric to gauge the returns a company generates from its capital employed in operations.
With Dow’s figures calculated based on the trailing twelve months to December 2023, its ROCE stands at 5.5%. This figure, in absolute terms, falls below the Chemicals industry average of 9.7%.
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Examining Dow Jones’s ROCE Trends
Dow’s ROCE trajectory presents concerning trends. Specifically, the ROCE stood at 8.2% five years ago but has since dwindled to 5.5%. Concurrently, the capital employed by Dow has decreased by 30% over the same period. This dual decline suggests challenging times for the business. Should these patterns persist, a cautious outlook for Dow’s future performance is warranted.
Key Insights
In essence, Dow Jones‘s diminishing capital base alongside dwindling returns paints a concerning picture. Despite the stock’s 33% rise over the past five years, the adverse trends observed raise skepticism. Consequently, investors might find better opportunities elsewhere if these trends persist.
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