Jubilant Industries (NSE:JUBLINDS) Is Achieving High Returns On Its Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Jubilant Industries (NSE:JUBLINDS) 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. To calculate this metric for Jubilant Industries, this is the formula:

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

0.40 = ₹691m ÷ (₹4.3b - ₹2.6b) (Based on the trailing twelve months to June 2021).

Thus, Jubilant Industries has an ROCE of 40%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 17%.

Check out 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'd like to look at how Jubilant Industries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Jubilant Industries' ROCE Trend?

We're pretty happy with how the ROCE has been trending at Jubilant Industries. The data shows that returns on capital have increased by 319% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 24% less capital than it was five years ago. Jubilant Industries may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

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 60% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Key Takeaway

From what we've seen above, Jubilant Industries has managed to increase it's returns on capital all the while reducing it's capital base. And a remarkable 154% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

Jubilant Industries does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.
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