Is Jay Bharat Maruti (NSE:JAYBARMARU) Likely To Turn Things Around?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Jay Bharat Maruti (NSE:JAYBARMARU), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 Jay Bharat Maruti is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.043 = ₹349m ÷ (₹12b - ₹3.9b) (Based on the trailing twelve months to June 2020).

So, Jay Bharat Maruti has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 5.8%.

See our latest analysis for Jay Bharat Maruti

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jay Bharat Maruti's ROCE against it's prior returns. If you're interested in investigating Jay Bharat Maruti's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Jay Bharat Maruti's ROCE Trending?

On the surface, the trend of ROCE at Jay Bharat Maruti doesn't inspire confidence. Around five years ago the returns on capital were 22%, but since then they've fallen to 4.3%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

On a related note, Jay Bharat Maruti has decreased its current liabilities to 32% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On Jay Bharat Maruti's ROCE

We're a bit apprehensive about Jay Bharat Maruti because despite more capital being deployed in the business, returns on that capital and sales have both fallen. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 65% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you'd like to know more about Jay Bharat Maruti, we've spotted 4 warning signs, and 2 of them can't be ignored.

While Jay Bharat Maruti 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. 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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