Jaya Tiasa Holdings Berhad (KLSE:JTIASA) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Jaya Tiasa Holdings Berhad's (KLSE:JTIASA) returns on capital, so let's have a look.

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 Jaya Tiasa Holdings Berhad is:

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

0.10 = RM186m ÷ (RM2.1b - RM212m) (Based on the trailing twelve months to December 2021).

So, Jaya Tiasa Holdings Berhad has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Forestry industry average of 5.9% it's much better.

See our latest analysis for Jaya Tiasa Holdings Berhad

Above you can see how the current ROCE for Jaya Tiasa Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Jaya Tiasa Holdings Berhad here for free.

What The Trend Of ROCE Can Tell Us

We're pretty happy with how the ROCE has been trending at Jaya Tiasa Holdings Berhad. We found that the returns on capital employed over the last five years have risen by 99%. The company is now earning RM0.1 per dollar of capital employed. In regards to capital employed, Jaya Tiasa Holdings Berhad appears to been achieving more with less, since the business is using 31% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line On Jaya Tiasa Holdings Berhad's ROCE

In summary, it's great to see that Jaya Tiasa Holdings Berhad has been able to turn things around and earn higher returns on lower amounts of capital. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know about the risks facing Jaya Tiasa Holdings Berhad, we've discovered 1 warning sign that you should be aware of.

While Jaya Tiasa Holdings Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.