Joyce (ASX:JYC) Could Become A Multi-Bagger
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Speaking of which, we noticed some great changes in Joyce's (ASX:JYC) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Joyce, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.38 = AU$20m ÷ (AU$86m - AU$33m) (Based on the trailing twelve months to June 2022).
So, Joyce has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 19%.
Check out our latest analysis for Joyce
Historical performance is a great place to start when researching a stock so above you can see the gauge for Joyce's ROCE against it's prior returns. If you're interested in investigating Joyce's past further, check out this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
Investors would be pleased with what's happening at Joyce. The data shows that returns on capital have increased substantially over the last five years to 38%. 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 48%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 38% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.
Our Take On Joyce's ROCE
All in all, it's terrific to see that Joyce is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 202% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Joyce can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing Joyce, we've discovered 4 warning signs that you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
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