Returns On Capital Are Showing Encouraging Signs At JSW Infrastructure (NSE:JSWINFRA)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at JSW Infrastructure (NSE:JSWINFRA) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for JSW Infrastructure:

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

0.13 = ₹17b ÷ (₹144b - ₹8.2b) (Based on the trailing twelve months to September 2024).

Therefore, JSW Infrastructure has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

View our latest analysis for JSW Infrastructure

In the above chart we have measured JSW Infrastructure's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for JSW Infrastructure .

What Does the ROCE Trend For JSW Infrastructure Tell Us?

The trends we've noticed at JSW Infrastructure are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 143%. So we're very much inspired by what we're seeing at JSW Infrastructure thanks to its ability to profitably reinvest capital.

Our Take On JSW Infrastructure's ROCE

All in all, it's terrific to see that JSW Infrastructure is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 87% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for JSWINFRA on our platform that is definitely worth checking out.

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.