If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in JAG Berhad's (KLSE:JAG) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for JAG Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.035 = RM9.0m ÷ (RM301m - RM44m) (Based on the trailing twelve months to June 2024).
Therefore, JAG Berhad has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.8%.
View our latest analysis for JAG Berhad
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of JAG Berhad.
How Are Returns Trending?
We're delighted to see that JAG Berhad is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 3.5% on its capital. In addition to that, JAG Berhad is employing 56% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
Our Take On JAG Berhad's ROCE
Long story short, we're delighted to see that JAG Berhad's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 117% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if JAG Berhad can keep these trends up, it could have a bright future ahead.