Jullundur Motor Agency (Delhi) (NSE:JMA) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Jullundur Motor Agency (Delhi) (NSE:JMA) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Jullundur Motor Agency (Delhi) is:

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

0.13 = ₹286m ÷ (₹2.9b - ₹734m) (Based on the trailing twelve months to December 2023).

Therefore, Jullundur Motor Agency (Delhi) has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 6.2% generated by the Retail Distributors industry.

See our latest analysis for Jullundur Motor Agency (Delhi)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jullundur Motor Agency (Delhi)'s ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jullundur Motor Agency (Delhi).

How Are Returns Trending?

Investors would be pleased with what's happening at Jullundur Motor Agency (Delhi). The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 37% more capital is being employed now too. 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.

What We Can Learn From Jullundur Motor Agency (Delhi)'s ROCE

To sum it up, Jullundur Motor Agency (Delhi) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. 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 Jullundur Motor Agency (Delhi) can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 3 warning signs with Jullundur Motor Agency (Delhi) (at least 1 which is potentially serious) , and understanding them would certainly be useful.

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.