Returns On Capital Are Showing Encouraging Signs At Minami Acoustics (SZSE:301383)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Minami Acoustics' (SZSE:301383) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Minami Acoustics, this is the formula:

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

0.055 = CN¥109m ÷ (CN¥2.5b - CN¥501m) (Based on the trailing twelve months to March 2024).

So, Minami Acoustics has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 8.4%.

Check out our latest analysis for Minami Acoustics

Above you can see how the current ROCE for Minami Acoustics 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 Minami Acoustics .

So How Is Minami Acoustics' ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 5.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 893% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 20%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

In Conclusion...

All in all, it's terrific to see that Minami Acoustics is reaping the rewards from prior investments and is growing its capital base. And with a respectable 11% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Minami Acoustics can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 3 warning signs facing Minami Acoustics that you might find interesting.

While Minami Acoustics isn't earning the highest return, check out this free list of companies that are 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.