What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Jumbo Interactive (ASX:JIN) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Jumbo Interactive is:

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

0.42 = AU$47m ÷ (AU$156m - AU$44m) (Based on the trailing twelve months to June 2023).

So, Jumbo Interactive has an ROCE of 42%.  That's a fantastic return and not only that, it outpaces the average of 6.2% earned by companies in a similar industry.

See our latest analysis for Jumbo Interactive  roce

In the above chart we have measured Jumbo Interactive's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Jumbo Interactive here  for free.

The Trend Of ROCE

The trends we've noticed at Jumbo Interactive are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 42%. 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 136%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Jumbo Interactive's ROCE

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 Jumbo Interactive has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Jumbo Interactive can keep these trends up, it could have a bright future ahead.



On a separate note, we've found  1 warning sign for Jumbo Interactive  you'll probably want to know about.

Jumbo Interactive is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.