If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Jardine Cycle & Carriage's (SGX:C07) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Jardine Cycle & Carriage:

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

0.12 = US$2.7b ÷ (US$32b - US$8.9b) (Based on the trailing twelve months to June 2024).

Therefore, Jardine Cycle & Carriage has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.5% generated by the Industrials industry.

Above you can see how the current ROCE for Jardine Cycle & Carriage 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 Jardine Cycle & Carriage .

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 21% in that time. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

To sum it up, Jardine Cycle & Carriage has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 15% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Jardine Cycle & Carriage is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you want to continue researching Jardine Cycle & Carriage, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.