Stock Analysis

Returns On Capital Are Showing Encouraging Signs At Jade Power Trust (CVE:JPWR.UN)

TSXV:JPWR.H
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Speaking of which, we noticed some great changes in Jade Power Trust's (CVE:JPWR.UN) returns on capital, so let's have a look.

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. To calculate this metric for Jade Power Trust, this is the formula:

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

0.091 = CA$5.9m ÷ (CA$76m - CA$11m) (Based on the trailing twelve months to March 2021).

Therefore, Jade Power Trust has an ROCE of 9.1%. In absolute terms, that's a low return, but it's much better than the Renewable Energy industry average of 5.6%.

See our latest analysis for Jade Power Trust

roce
TSXV:JPWR.UN Return on Capital Employed June 11th 2021

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're interested in investigating Jade Power Trust's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Jade Power Trust has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 9.1% on its capital. In addition to that, Jade Power Trust is employing 50% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On Jade Power Trust's ROCE

In summary, it's great to see that Jade Power Trust has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 66% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing to note, we've identified 3 warning signs with Jade Power Trust and understanding these should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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