The Returns At Jagran Prakashan (NSE:JAGRAN) Provide Us With Signs Of What's To Come

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Jagran Prakashan (NSE:JAGRAN), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Jagran Prakashan is:

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

0.048 = ₹1.1b ÷ (₹30b - ₹5.8b) (Based on the trailing twelve months to June 2020).

Thus, Jagran Prakashan has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Media industry average of 9.3%.

See our latest analysis for Jagran Prakashan

Above you can see how the current ROCE for Jagran Prakashan compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Jagran Prakashan here for free.

What Can We Tell From Jagran Prakashan's ROCE Trend?

When we looked at the ROCE trend at Jagran Prakashan, we didn't gain much confidence. To be more specific, ROCE has fallen from 26% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

On a related note, Jagran Prakashan has decreased its current liabilities to 20% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On Jagran Prakashan's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Jagran Prakashan have fallen, meanwhile the business is employing more capital than it was five years ago. We expect this has contributed to the stock plummeting 72% during the last five years. Unless these trends revert to a more positive trajectory, we would look elsewhere.

If you're still interested in Jagran Prakashan it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Jagran Prakashan 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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