Returns At Jardine Cycle & Carriage (SGX:C07) Appear To Be Weighed Down

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. However, after investigating Jardine Cycle & Carriage (SGX:C07), we don't think it's current trends fit the mold of a multi-bagger.

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 Jardine Cycle & Carriage, this is the formula:

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

0.11 = US$2.6b ÷ (US$32b - US$8.5b) (Based on the trailing twelve months to December 2024).

So, Jardine Cycle & Carriage has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Industrials industry average of 6.6% it's much better.

Check out 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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Jardine Cycle & Carriage .

So How Is Jardine Cycle & Carriage's ROCE Trending?

Things have been pretty stable at Jardine Cycle & Carriage, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Jardine Cycle & Carriage to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Jardine Cycle & Carriage has been paying out a decent 40% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

Our Take On Jardine Cycle & Carriage's ROCE

In a nutshell, Jardine Cycle & Carriage has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has gained an impressive 62% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a separate note, we've found 1 warning sign for Jardine Cycle & Carriage you'll probably want to know about.

While Jardine Cycle & Carriage 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.