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’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we’ve noticed some promising trends at Jetpak Top Holding (STO:JETPAK) so let’s look a bit deeper.
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. Analysts use this formula to calculate it for Jetpak Top Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.081 = kr67m ÷ (kr1.0b – kr205m) (Based on the trailing twelve months to June 2020).
So, Jetpak Top Holding has an ROCE of 8.1%. In absolute terms, that’s a low return but it’s around the Logistics industry average of 8.5%.
Above you can see how the current ROCE for Jetpak Top Holding compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’re interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is Jetpak Top Holding’s ROCE Trending?
Jetpak Top Holding has broken into the black (profitability) and we’re sure it’s a sight for sore eyes. The company was generating losses three years ago, but has managed to turn it around and as we saw earlier is now earning 8.1%, which is always encouraging. On top of that, what’s interesting is that the amount of capital being employed has remained steady, so the business hasn’t needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it’s worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
The Bottom Line On Jetpak Top Holding’s ROCE
To sum it up, Jetpak Top Holding is collecting higher returns from the same amount of capital, and that’s impressive. And with a respectable 14% awarded to those who held the stock over the last year, you could argue that these trends are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Jetpak Top Holding does have some risks though, and we’ve spotted 1 warning sign for Jetpak Top Holding that you might be interested in.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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