Returns on Capital Paint A Bright Future For Jindal Worldwide (NSE:JINDWORLD)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Jindal Worldwide's (NSE:JINDWORLD) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Jindal Worldwide:

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

0.30 = ₹1.7b ÷ (₹11b - ₹5.6b) (Based on the trailing twelve months to September 2021).

So, Jindal Worldwide has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Luxury industry average of 13%.

Check out our latest analysis for Jindal Worldwide

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 want to delve into the historical earnings, revenue and cash flow of Jindal Worldwide, check out these free graphs here.

The Trend Of ROCE

Jindal Worldwide is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 30%. The amount of capital employed has increased too, by 23%. So we're very much inspired by what we're seeing at Jindal Worldwide thanks to its ability to profitably reinvest capital.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 49% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line

In summary, it's great to see that Jindal Worldwide can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 899% 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 Jindal Worldwide can keep these trends up, it could have a bright future ahead.

Jindal Worldwide does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are a bit concerning...

Jindal Worldwide 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.

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.

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