Why We Like The Returns At Jash Engineering (NSE:JASH)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So when we looked at the ROCE trend of Jash Engineering (NSE:JASH) we really liked what we saw.

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 Jash Engineering:

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

0.24 = ₹881m ÷ (₹6.0b - ₹2.3b) (Based on the trailing twelve months to March 2024).

Therefore, Jash Engineering has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Machinery industry average of 17%.

View our latest analysis for Jash Engineering

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jash Engineering's ROCE against it's prior returns. If you're interested in investigating Jash Engineering's past further, check out this free graph covering Jash Engineering's past earnings, revenue and cash flow.

What Can We Tell From Jash Engineering's ROCE Trend?

Jash Engineering is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. Basically the business is earning more per dollar of capital invested and in addition to that, 196% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, Jash Engineering has decreased current liabilities to 38% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On Jash Engineering's ROCE

All in all, it's terrific to see that Jash Engineering is reaping the rewards from prior investments and is growing its capital base. And a remarkable 1,922% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Jash Engineering can keep these trends up, it could have a bright future ahead.

Like most companies, Jash Engineering does come with some risks, and we've found 2 warning signs that you should be aware of.

Jash Engineering is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.