There’s reason to feel uneasy about Jardine Cycle & Carriage’s capital returns (SGX: C07)

There are a few key trends to look out for if we want to identify the next multi-bagger. Among other things, we will want to see two things; first, growth to return to on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. In light of this, when we looked Jardine Cycle & Carriage (SGX:C07) and its ROCE trend, we weren’t exactly thrilled.

What is return on capital employed (ROCE)?

If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. The formula for this calculation on Jardine Cycle & Carriage is:

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

0.079 = $1.7 billion ÷ ($29 billion – $7.6 billion) (Based on the last twelve months to December 2021).

Thereby, Jardine Cycle & Carriage has a ROCE of 7.9%. In itself, this is a low number, but it is around the average of 7.0% generated by the industrial industry.

See our latest review for Jardine Cycle & Carriage

SGX:C07 Return on Capital Employed April 1, 2022

In the chart above, we measured Jardine Cycle & Carriage’s past ROCE against its past performance, but the future is arguably more important. If you want to see what analysts are predicting for the future, you should check out our free report for Jardine Cycle & Carriage.

The ROCE trend

On the surface, the ROCE trend at Jardine Cycle & Carriage does not inspire confidence. To be more specific, ROCE has fallen by 10% over the past five years. However, given that capital employed and revenue have both increased, it appears that the company is currently continuing to grow, following short-term returns. And if the capital increase generates additional returns, the company, and therefore the shareholders, will benefit in the long term.

Our take on Jardine Cycle & Carriage ROCE

Even though capital returns have fallen in the short term, we find it promising that both revenue and capital employed have increased for Jardine Cycle & Carriage. And there could be an opportunity here if other metrics look good too, as the stock is down 35% in the last five years. So we think it would be worth taking a closer look at this stock as the trends look encouraging.

If you want to know the risks that Jardine Cycle & Carriage faces, we have discovered 1 warning sign of which you should be aware.

If you want to look for strong companies with excellent earnings, check out this free list of companies with strong balance sheets and impressive returns on equity.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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