Jardine Cycle & Carriage's (SGX:C07) Returns Have Hit A Wall

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Jardine Cycle & Carriage's (SGX:C07) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Jardine Cycle & Carriage, this is the formula:

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

0.12 = US$2.6b ÷ (US$30b - US$8.0b) (Based on the trailing twelve months to June 2022).

Therefore, Jardine Cycle & Carriage has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 7.5% generated by the Industrials industry.

View our latest analysis for Jardine Cycle & Carriage

In the above chart we have measured Jardine Cycle & Carriage's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Jardine Cycle & Carriage Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 39% more capital into its operations. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Jardine Cycle & Carriage's ROCE

To sum it up, Jardine Cycle & Carriage has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 14%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Jardine Cycle & Carriage does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

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.