What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. And in light of that, the trends we’re seeing at JBS’ (BVMF:JBSS3) look very promising so lets take a look.
What Is 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 JBS:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.22 = R$33b ÷ (R$206b – R$57b) (Based on the trailing twelve months to September 2022).
Therefore, JBS has an ROCE of 22%. That’s a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.
View our latest analysis for JBS
In the above chart we have measured JBS’ 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 report for JBS.
So How Is JBS’ ROCE Trending?
JBS is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 22%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 91%. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, a combination that’s common among multi-baggers.
The Bottom Line On JBS’ ROCE
All in all, it’s terrific to see that JBS is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it’s worth researching the company further to see if these trends are likely to persist.
If you want to know some of the risks facing JBS we’ve found 3 warning signs (2 make us uncomfortable!) that you should be aware of before investing here.
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.
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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.
I have been writing professionally for over 20 years and have a deep understanding of the psychological and emotional elements that affect people. I’m an experienced ghostwriter and editor, as well as an award-winning author of five novels.