Returns On Capital At JS Global Lifestyle (HKG:1691) Have Hit The Brakes

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, the ROCE of JS Global Lifestyle (HKG:1691) looks decent, right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for JS Global Lifestyle:

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

0.17 = US$511m ÷ (US$4.7b - US$1.6b) (Based on the trailing twelve months to December 2020).

Thus, JS Global Lifestyle has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 13% it's much better.

See our latest analysis for JS Global Lifestyle

Above you can see how the current ROCE for JS Global Lifestyle 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.

What Does the ROCE Trend For JS Global Lifestyle Tell Us?

While the returns on capital are good, they haven't moved much. Over the past four years, ROCE has remained relatively flat at around 17% and the business has deployed 361% more capital into its operations. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

The main thing to remember is that JS Global Lifestyle has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 196% return they've received over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

JS Global Lifestyle does have some risks though, and we've spotted 3 warning signs for JS Global Lifestyle that you might be interested in.

While JS Global Lifestyle 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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