J&T Global Express' (HKG:1519) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in J&T Global Express' (HKG:1519) 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. The formula for this calculation on J&T Global Express is:

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

0.0041 = US$15m ÷ (US$6.7b - US$3.1b) (Based on the trailing twelve months to June 2024).

So, J&T Global Express has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 7.3%.

Check out our latest analysis for J&T Global Express

In the above chart we have measured J&T Global Express' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for J&T Global Express .

How Are Returns Trending?

We're delighted to see that J&T Global Express is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses three years ago, but now it's earning 0.4% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, J&T Global Express is utilizing 31% more capital than it was three years ago. 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.

On a side note, J&T Global Express' current liabilities are still rather high at 47% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

Long story short, we're delighted to see that J&T Global Express' reinvestment activities have paid off and the company is now profitable. Given the stock has declined 50% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

While J&T Global Express looks impressive, no company is worth an infinite price. The intrinsic value infographic for 1519 helps visualize whether it is currently trading for a fair price.

While J&T Global Express isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.