Jubilant FoodWorks (NSE:JUBLFOOD) Is Achieving High Returns On Its Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Jubilant FoodWorks (NSE:JUBLFOOD) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Jubilant FoodWorks is:

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

0.21 = ₹6.9b ÷ (₹42b - ₹8.6b) (Based on the trailing twelve months to December 2021).

So, Jubilant FoodWorks has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 5.1% earned by companies in a similar industry.

See our latest analysis for Jubilant FoodWorks

In the above chart we have measured Jubilant FoodWorks' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Jubilant FoodWorks.

How Are Returns Trending?

Investors would be pleased with what's happening at Jubilant FoodWorks. Over the last five years, returns on capital employed have risen substantially to 21%. The amount of capital employed has increased too, by 286%. So we're very much inspired by what we're seeing at Jubilant FoodWorks thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 21%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Jubilant FoodWorks' ROCE

All in all, it's terrific to see that Jubilant FoodWorks is reaping the rewards from prior investments and is growing its capital base. And a remarkable 356% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Jubilant FoodWorks, we've discovered 2 warning signs that you should be aware of.

Jubilant FoodWorks 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.

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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.