If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Jade Power Trust (CVE:JPWR.UN) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Jade Power Trust:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.08 = CA$5.3m ÷ (CA$74m - CA$8.7m) (Based on the trailing twelve months to September 2021).
Thus, Jade Power Trust has an ROCE of 8.0%. In absolute terms, that's a low return, but it's much better than the Renewable Energy industry average of 4.2%.
See our latest analysis for Jade Power Trust
Historical performance is a great place to start when researching a stock so above you can see the gauge for Jade Power Trust's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Jade Power Trust, check out these free graphs here.
The Trend Of ROCE
Jade Power Trust has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 2,075% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
Our Take On Jade Power Trust's ROCE
To bring it all together, Jade Power Trust has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 50% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.
One more thing to note, we've identified 2 warning signs with Jade Power Trust and understanding these should be part of your investment process.
While Jade Power Trust 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
About TSXV:JPWR.H
Adequate balance sheet slight.
