The Trends At Jindal Drilling & Industries (NSE:JINDRILL) That You Should Know About

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Jindal Drilling & Industries (NSE:JINDRILL) and its ROCE trend, we weren't exactly thrilled.

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. 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 = ₹411m ÷ (₹19b - ₹2.9b) (Based on the trailing twelve months to September 2020).

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 16%.

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

So How Is Jindal Drilling & Industries' ROCE Trending?

In terms of Jindal Drilling & Industries' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 3.8% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

While returns have fallen for Jindal Drilling & Industries in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 27% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing: We've identified 5 warning signs with Jindal Drilling & Industries (at least 2 which don't sit too well with us) , and understanding these would certainly be useful.

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. 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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