To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Jervois Global's (ASX:JRV) returns on capital, so let's have a look.

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. The formula for this calculation on Jervois Global is:

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

0.0046 = US$2.4m ÷ (US$668m - US$142m) (Based on the trailing twelve months to June 2022).

Thus, Jervois Global has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 8.0%.

See our latest analysis for Jervois Global

In the above chart we have measured Jervois Global'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 report for Jervois Global.

What Does the ROCE Trend For Jervois Global Tell Us?

We're delighted to see that Jervois Global is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 0.5% which is a sight for sore eyes. In addition to that, Jervois Global is employing 5,563% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 21% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

Our Take On Jervois Global's ROCE

In summary, it's great to see that Jervois Global has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 236% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.