Why The 22% Return On Capital At Jindal Saw (NSE:JINDALSAW) Should Have Your Attention

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Jindal Saw's (NSE:JINDALSAW) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Jindal Saw is:

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

0.22 = ₹28b ÷ (₹210b - ₹83b) (Based on the trailing twelve months to June 2024).

So, Jindal Saw has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 15%.

View our latest analysis for Jindal Saw

In the above chart we have measured Jindal Saw's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Jindal Saw for free.

The Trend Of ROCE

The trends we've noticed at Jindal Saw are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 22%. The amount of capital employed has increased too, by 35%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Jindal Saw's ROCE

All in all, it's terrific to see that Jindal Saw is reaping the rewards from prior investments and is growing its capital base. And a remarkable 888% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 2 warning signs with Jindal Saw and understanding these should be part of your investment process.

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.