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

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. 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)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Jaya Tiasa Holdings Berhad:

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

0.12 = RM232m ÷ (RM2.1b - RM157m) (Based on the trailing twelve months to June 2022).

Thus, Jaya Tiasa Holdings Berhad has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 5.9% generated by the Forestry industry.

Our analysis indicates that JTIASA is potentially undervalued!

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 Can We Tell From Jaya Tiasa Holdings Berhad's ROCE Trend?

Jaya Tiasa Holdings Berhad has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 88%. The company is now earning RM0.1 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 25% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

On a related note, the company's ratio of current liabilities to total assets has decreased to 7.6%, 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

In a nutshell, we're pleased to see that Jaya Tiasa Holdings Berhad has been able to generate higher returns from less capital. And since the stock has fallen 46% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 2 warning signs with Jaya Tiasa Holdings Berhad (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

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.