Why We Like The Returns At Jupiter Wagons (NSE:JWL)

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Jupiter Wagons (NSE:JWL) 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. To calculate this metric for Jupiter Wagons, this is the formula:

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

0.22 = ₹1.7b ÷ (₹13b - ₹5.2b) (Based on the trailing twelve months to December 2022).

Thus, Jupiter Wagons has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Machinery industry average of 16%.

Check out our latest analysis for Jupiter Wagons

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jupiter Wagons' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Jupiter Wagons, check out these free graphs here.

So How Is Jupiter Wagons' ROCE Trending?

The fact that Jupiter Wagons is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses three years ago, but now it's earning 22% which is a sight for sore eyes. In addition to that, Jupiter Wagons is employing 392% 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.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 41% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

In Conclusion...

To the delight of most shareholders, Jupiter Wagons has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Jupiter Wagons can keep these trends up, it could have a bright future ahead.

Jupiter Wagons does have some risks though, and we've spotted 1 warning sign for Jupiter Wagons that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.