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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Jubilee Metals Group (LON:JLP), it didn't seem to tick all of these boxes.
What Is Return On Capital Employed (ROCE)?
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 Jubilee Metals Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.042 = US$12m ÷ (US$414m - US$133m) (Based on the trailing twelve months to June 2024).
Thus, Jubilee Metals Group has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 8.8%.
View our latest analysis for Jubilee Metals Group
Above you can see how the current ROCE for Jubilee Metals Group 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 analyst report for Jubilee Metals Group .
What Does the ROCE Trend For Jubilee Metals Group Tell Us?
The returns on capital haven't changed much for Jubilee Metals Group in recent years. The company has consistently earned 4.2% for the last five years, and the capital employed within the business has risen 132% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 32% of total assets, this reported ROCE would probably be less than4.2% because total capital employed would be higher.The 4.2% ROCE could be even lower if current liabilities weren't 32% of total assets, because the the formula would show a larger base of total capital employed. So while current liabilities isn't high right now, keep an eye out in case it increases further, because this can introduce some elements of risk.