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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Jardine Cycle & Carriage (SGX:C07), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Jardine Cycle & Carriage, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$2.6b ÷ (US$32b - US$8.5b) (Based on the trailing twelve months to December 2024).
Therefore, Jardine Cycle & Carriage has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.6% generated by the Industrials industry.
View our latest analysis for Jardine Cycle & Carriage
In the above chart we have measured Jardine Cycle & Carriage'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 analyst report for Jardine Cycle & Carriage .
How Are Returns Trending?
There hasn't been much to report for Jardine Cycle & Carriage's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Jardine Cycle & Carriage in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why Jardine Cycle & Carriage is paying out 40% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.
What We Can Learn From Jardine Cycle & Carriage's ROCE
In summary, Jardine Cycle & Carriage isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 44% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.