Under The Bonnet, Jati Tinggi Group Berhad's (KLSE:JTGROUP) Returns Look Impressive
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at the ROCE trend of Jati Tinggi Group Berhad (KLSE:JTGROUP) we really liked what we saw.
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 Jati Tinggi Group Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = RM19m ÷ (RM137m - RM70m) (Based on the trailing twelve months to November 2024).
So, Jati Tinggi Group Berhad has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 8.9% earned by companies in a similar industry.
Check out our latest analysis for Jati Tinggi Group Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Jati Tinggi Group Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jati Tinggi Group Berhad.
The trends we've noticed at Jati Tinggi Group Berhad are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 28%. Basically the business is earning more per dollar of capital invested and in addition to that, 253% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 51%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Jati Tinggi Group Berhad has. Considering the stock has delivered 4.8% to its stockholders over the last year, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.
One final note, you should learn about the 3 warning signs we've spotted with Jati Tinggi Group Berhad (including 1 which can't be ignored) .
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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