Investors Will Want Kumpulan Jetson Berhad's (KLSE:JETSON) Growth In ROCE To Persist

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Kumpulan Jetson Berhad (KLSE:JETSON) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Kumpulan Jetson Berhad, this is the formula:

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

0.16 = RM11m ÷ (RM151m - RM80m) (Based on the trailing twelve months to March 2024).

Therefore, Kumpulan Jetson Berhad has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 10% it's much better.

See our latest analysis for Kumpulan Jetson Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Kumpulan Jetson Berhad's past further, check out this free graph covering Kumpulan Jetson Berhad's past earnings, revenue and cash flow.

So How Is Kumpulan Jetson Berhad's ROCE Trending?

It's great to see that Kumpulan Jetson Berhad has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 16% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 37%. Kumpulan Jetson Berhad could be selling under-performing assets since the ROCE is improving.

On a side note, Kumpulan Jetson Berhad's current liabilities are still rather high at 53% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

In a nutshell, we're pleased to see that Kumpulan Jetson Berhad has been able to generate higher returns from less capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 86% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Kumpulan Jetson Berhad, we've spotted 4 warning signs, and 2 of them are potentially serious.

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.

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