Here's What To Make Of Jardine Cycle & Carriage's (SGX:C07) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Jardine Cycle & Carriage (SGX:C07) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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)

0.11 = US$2.1b ÷ (US$27b - US$8.0b) (Based on the trailing twelve months to June 2020).

Therefore, Jardine Cycle & Carriage has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Retail Distributors industry average of 4.6% it's much better.

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

What Can We Tell From Jardine Cycle & Carriage's ROCE Trend?

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 11% and the business has deployed 40% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Jardine Cycle & Carriage has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Jardine Cycle & Carriage's ROCE

The main thing to remember is that Jardine Cycle & Carriage has proven its ability to continually reinvest at respectable rates of return. Yet over the last five years the stock has declined 32%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you want to continue researching Jardine Cycle & Carriage, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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