JSW Ispat Special Products (NSE:JSWISPL) Shareholders Will Want The ROCE Trajectory To Continue

There are a few key trends to look for if we want to identify the next multi-bagger. 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.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.092 = ₹3.4b ÷ (₹52b - ₹15b) (Based on the trailing twelve months to December 2021).

So, JSW Ispat Special Products has an ROCE of 9.2%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 18%.

Check out our latest analysis for JSW Ispat Special Products

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.

The Trend Of ROCE

We're delighted to see that JSW Ispat Special Products is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. 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. JSW Ispat Special Products could be selling under-performing assets since the ROCE is improving.

In Conclusion...

In a nutshell, we're pleased to see that JSW Ispat Special Products has been able to generate higher returns from less capital. Given the stock has declined 67% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 1 warning sign for JSW Ispat Special Products that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.