Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 Jade Marvel Group Berhad (KLSE:JADEM) so let's look a bit deeper.
Return On Capital Employed (ROCE): What is it?
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 Jade Marvel Group Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.065 = RM6.6m ÷ (RM114m - RM12m) (Based on the trailing twelve months to September 2021).
Thus, Jade Marvel Group Berhad has an ROCE of 6.5%. In absolute terms, that's a low return but it's around the Basic Materials industry average of 7.2%.
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 Jade Marvel Group Berhad's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Jade Marvel Group Berhad Tell Us?
Jade Marvel Group Berhad is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 127% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
One more thing to note, Jade Marvel Group Berhad has decreased current liabilities to 10% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
What We Can Learn From Jade Marvel Group Berhad's ROCE
To bring it all together, Jade Marvel Group Berhad has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 24% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
One more thing, we've spotted 2 warning signs facing Jade Marvel Group Berhad that you might find interesting.
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.
Valuation is complex, but we're helping make it simple.
Find out whether Jade Marvel Group Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.