Has Jash Engineering (NSE:JASH) Got What It Takes To Become A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, the ROCE of Jash Engineering (NSE:JASH) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Jash Engineering:

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

0.18 = ₹257m ÷ (₹2.9b - ₹1.4b) (Based on the trailing twelve months to December 2020).

So, Jash Engineering has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 11% it's much better.

Check out our latest analysis for Jash Engineering

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 Jash Engineering 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 Jash Engineering's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 63% more capital in the last five years, and the returns on that capital have remained stable at 18%. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Jash Engineering's current liabilities are still rather high at 50% 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Jash Engineering's ROCE

In the end, Jash Engineering has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last three years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we found 4 warning signs for Jash Engineering (1 is significant) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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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