We Think Jayaswal Neco Industries (NSE:JAYNECOIND) Might Have The DNA Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Jayaswal Neco Industries (NSE:JAYNECOIND) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Jayaswal Neco Industries, this is the formula:

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

0.25 = ₹5.2b ÷ (₹61b - ₹40b) (Based on the trailing twelve months to March 2023).

So, Jayaswal Neco Industries has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 14%.

See our latest analysis for Jayaswal Neco Industries

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 want to delve into the historical earnings, revenue and cash flow of Jayaswal Neco Industries, check out these free graphs here.

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

We're pretty happy with how the ROCE has been trending at Jayaswal Neco Industries. We found that the returns on capital employed over the last five years have risen by 1,809%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Jayaswal Neco Industries appears to been achieving more with less, since the business is using 44% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 65% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

In Conclusion...

From what we've seen above, Jayaswal Neco Industries has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a staggering 383% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 4 warning signs for Jayaswal Neco Industries (1 is concerning) you should be aware of.

Jayaswal Neco Industries is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.