JSW Ispat Special Products (NSE:JSWISPL) Is Looking To Continue Growing Its Returns On Capital

By
Simply Wall St
Published
January 04, 2022
NSEI:JSWISPL
Source: Shutterstock

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 JSW Ispat Special Products (NSE:JSWISPL) and its trend of ROCE, we really liked what we saw.

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 JSW Ispat Special Products:

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

0.11 = ₹4.0b ÷ (₹52b - ₹15b) (Based on the trailing twelve months to September 2021).

Thus, JSW Ispat Special Products has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Metals and Mining industry average it falls behind.

See our latest analysis for JSW Ispat Special Products

roce
NSEI:JSWISPL Return on Capital Employed January 4th 2022

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're interested in investigating JSW Ispat Special Products' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For JSW Ispat Special Products Tell Us?

Like most people, we're pleased that JSW Ispat Special Products is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 11% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 58% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.

Our Take On JSW Ispat Special Products' ROCE

From what we've seen above, JSW Ispat Special Products has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 55% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing JSW Ispat Special Products we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While JSW Ispat Special Products 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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