Investors Shouldn't Overlook Jubilant Industries' (NSE:JUBLINDS) Impressive 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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Jubilant Industries' (NSE:JUBLINDS) look very promising so lets take 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. Analysts use this formula to calculate it for Jubilant Industries:

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

0.40 = ₹871m ÷ (₹6.8b - ₹4.7b) (Based on the trailing twelve months to June 2022).

Thus, Jubilant Industries has an ROCE of 40%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

See our latest analysis for Jubilant Industries

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

How Are Returns Trending?

Jubilant Industries is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 163% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 68% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Jubilant Industries' ROCE

To bring it all together, Jubilant 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. In light of that, we think it's worth looking further into this stock because if Jubilant Industries can keep these trends up, it could have a bright future ahead.

Like most companies, Jubilant Industries does come with some risks, and we've found 3 warning signs that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.