Many Would Be Envious Of Jayant Agro-Organics' (NSE:JAYAGROGN) Excellent Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Jayant Agro-Organics (NSE:JAYAGROGN) looks attractive right now, so lets see what the trend of returns can tell us.

What is 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 Jayant Agro-Organics:

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

0.27 = ₹1.3b ÷ (₹8.3b - ₹3.4b) (Based on the trailing twelve months to September 2021).

So, Jayant Agro-Organics has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 17%.

View our latest analysis for Jayant Agro-Organics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jayant Agro-Organics' ROCE against it's prior returns. If you're interested in investigating Jayant Agro-Organics' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Jayant Agro-Organics' history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 27% and the business has deployed 50% more capital into its operations. Now considering ROCE is an attractive 27%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Jayant Agro-Organics can keep this up, we'd be very optimistic about its future.

On a side note, Jayant Agro-Organics has done well to reduce current liabilities to 42% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 42%, some of that risk is still prevalent.

In Conclusion...

In summary, we're delighted to see that Jayant Agro-Organics has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. However, despite the favorable fundamentals, the stock has fallen 18% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

On a final note, we found 6 warning signs for Jayant Agro-Organics (3 are potentially serious) you should be aware of.

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.