There's Been No Shortage Of Growth Recently For JITF Infralogistics' (NSE:JITFINFRA) 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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, we've noticed some promising trends at JITF Infralogistics (NSE:JITFINFRA) so let's look a bit deeper.

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. The formula for this calculation on JITF Infralogistics is:

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

0.036 = ₹546m ÷ (₹21b - ₹5.8b) (Based on the trailing twelve months to December 2020).

Therefore, JITF Infralogistics has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 8.8%.

View our latest analysis for JITF Infralogistics

Historical performance is a great place to start when researching a stock so above you can see the gauge for JITF Infralogistics' ROCE against it's prior returns. If you'd like to look at how JITF Infralogistics has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

JITF Infralogistics has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses four years ago, but now it's earning 3.6% which is a sight for sore eyes. Not only that, but the company is utilizing 128% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 27%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On JITF Infralogistics' ROCE

Long story short, we're delighted to see that JITF Infralogistics' reinvestment activities have paid off and the company is now profitable. Given the stock has declined 64% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 4 warning signs we've spotted with JITF Infralogistics (including 3 which are a bit concerning) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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