Returns On Capital At Jardine Cycle & Carriage (SGX:C07) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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.

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 Jardine Cycle & Carriage:

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

0.06 = US$1.2b ÷ (US$28b - US$7.1b) (Based on the trailing twelve months to June 2021).

So, Jardine Cycle & Carriage has an ROCE of 6.0%. On its own, that's a low figure but it's around the 6.5% average generated by the Industrials industry.

See our latest analysis for Jardine Cycle & Carriage

Above you can see how the current ROCE for Jardine Cycle & Carriage compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

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

In terms of Jardine Cycle & Carriage's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 6.0% and the business has deployed 41% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In summary, Jardine Cycle & Carriage has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 37% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Jardine Cycle & Carriage has the makings of a multi-bagger.

One more thing, we've spotted 2 warning signs facing Jardine Cycle & Carriage that you might find interesting.

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.