Returns At Jindal Drilling & Industries (NSE:JINDRILL) Are On The Way Up

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Jindal Drilling & Industries' (NSE:JINDRILL) returns on capital, so let's have a look.

Understanding 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 Jindal Drilling & Industries:

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

0.026 = ₹368m ÷ (₹18b - ₹3.9b) (Based on the trailing twelve months to June 2021).

Thus, Jindal Drilling & Industries has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 15%.

View our latest analysis for Jindal Drilling & Industries

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

What Does the ROCE Trend For Jindal Drilling & Industries Tell Us?

While there are companies with higher returns on capital out there, we still find the trend at Jindal Drilling & Industries promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 107% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Jindal Drilling & Industries' ROCE

To sum it up, Jindal Drilling & Industries is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 22% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

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

While Jindal Drilling & Industries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.
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