Jayaswal Neco Industries (NSE:JAYNECOIND) Is Looking To Continue Growing Its Returns On Capital

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at Jayaswal Neco Industries (NSE:JAYNECOIND) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Jayaswal Neco Industries:

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

0.15 = ₹8.1b ÷ (₹63b - ₹9.8b) (Based on the trailing twelve months to June 2022).

Thus, Jayaswal Neco Industries has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 17%.

Check out our latest analysis for Jayaswal Neco Industries

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

What Does the ROCE Trend For Jayaswal Neco Industries Tell Us?

Jayaswal Neco Industries is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 4,013% in that same time. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a related note, the company's ratio of current liabilities to total assets has decreased to 16%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Jayaswal Neco Industries' ROCE

To bring it all together, Jayaswal Neco Industries has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Jayaswal Neco Industries does come with some risks though, we found 4 warning signs in our investment analysis, and 3 of those are a bit unpleasant...

While Jayaswal Neco Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.