If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Speaking of which, we noticed some great changes in James Hardie Industries' (ASX:JHX) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for James Hardie Industries:

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

0.22 = US$941m ÷ (US$4.9b - US$745m) (Based on the trailing twelve months to June 2024).

So, James Hardie Industries has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Basic Materials industry average of 8.6%.

View our latest analysis for James Hardie Industries

Above you can see how the current ROCE for James Hardie Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering James Hardie Industries for free.

What Can We Tell From James Hardie Industries' ROCE Trend?

We like the trends that we're seeing from James Hardie Industries. The data shows that returns on capital have increased substantially over the last five years 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 20%. So we're very much inspired by what we're seeing at James Hardie Industries thanks to its ability to profitably reinvest capital.

The Bottom Line On James Hardie Industries' 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 James Hardie Industries has. Since the stock has returned a staggering 120% 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 James Hardie Industries can keep these trends up, it could have a bright future ahead.

While James Hardie Industries looks impressive, no company is worth an infinite price. The intrinsic value infographic for JHX helps visualize whether it is currently trading for a fair price.

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.