Jainam Ferro Alloys (I) (NSE:JAINAM) Is Investing Its Capital With Increasing Efficiency

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Jainam Ferro Alloys (I)'s (NSE:JAINAM) look very promising so lets take a look.

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 Jainam Ferro Alloys (I) is:

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

0.33 = ₹293m ÷ (₹1.1b - ₹244m) (Based on the trailing twelve months to March 2023).

So, Jainam Ferro Alloys (I) has an ROCE of 33%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for Jainam Ferro Alloys (I)

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'd like to look at how Jainam Ferro Alloys (I) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Jainam Ferro Alloys (I) is displaying some positive trends. Over the last four years, returns on capital employed have risen substantially to 33%. The amount of capital employed has increased too, by 255%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 22%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Jainam Ferro Alloys (I) has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Jainam Ferro Alloys (I)'s ROCE

To sum it up, Jainam Ferro Alloys (I) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 6.7% to its stockholders over the last year, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know more about Jainam Ferro Alloys (I), we've spotted 3 warning signs, and 1 of them can't be ignored.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.