Jura Energy's (CVE:JEC) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Jura Energy (CVE:JEC) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Jura Energy, this is the formula:

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

0.18 = US$7.8m ÷ (US$61m - US$17m) (Based on the trailing twelve months to September 2020).

Thus, Jura Energy has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 6.0% generated by the Oil and Gas industry.

View our latest analysis for Jura Energy

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Jura Energy has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Jura Energy's ROCE Trend?

We're delighted to see that Jura Energy is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 18% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

One more thing to note, Jura Energy has decreased current liabilities to 29% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Jura Energy has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Jura Energy's ROCE

To bring it all together, Jura Energy has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 429% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing Jura Energy we've found 3 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While Jura Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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