Under The Bonnet, Gullberg & Jansson's (NGM:GJAB) Returns Look Impressive

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Gullberg & Jansson's (NGM:GJAB) 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. To calculate this metric for Gullberg & Jansson, this is the formula:

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

0.38 = kr60m ÷ (kr238m - kr80m) (Based on the trailing twelve months to June 2021).

Thus, Gullberg & Jansson has an ROCE of 38%. That's a fantastic return and not only that, it outpaces the average of 26% earned by companies in a similar industry.

Check out our latest analysis for Gullberg & Jansson

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 want to delve into the historical earnings, revenue and cash flow of Gullberg & Jansson, check out these free graphs here.

What Can We Tell From Gullberg & Jansson's ROCE Trend?

Gullberg & Jansson is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 38%. The amount of capital employed has increased too, by 369%. So we're very much inspired by what we're seeing at Gullberg & Jansson thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that Gullberg & Jansson can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Gullberg & Jansson, we've discovered 3 warning signs that you should be aware of.

Gullberg & Jansson is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

If you’re looking to trade Gullberg & Jansson, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.