Jindal Drilling & Industries' (NSE:JINDRILL) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Jindal Drilling & Industries (NSE:JINDRILL) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Jindal Drilling & Industries, this is the formula:

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

0.018 = ₹262m ÷ (₹18b - ₹3.3b) (Based on the trailing twelve months to December 2021).

So, Jindal Drilling & Industries has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 16%.

See our latest analysis for Jindal Drilling & Industries

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're interested in investigating Jindal Drilling & Industries' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last five years, ROCE has grown 44% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Jindal Drilling & Industries' ROCE

In summary, we're delighted to see that Jindal Drilling & Industries has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 32% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

If you want to continue researching Jindal Drilling & Industries, you might be interested to know about the 2 warning signs that our analysis has discovered.

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. 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.