We Like These Underlying Return On Capital Trends At Stanley Electric (TSE:6923)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Stanley Electric (TSE:6923) looks quite promising in regards to its trends of return on capital.

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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. Analysts use this formula to calculate it for Stanley Electric:

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

0.074 = JP¥49b ÷ (JP¥750b - JP¥91b) (Based on the trailing twelve months to March 2025).

Therefore, Stanley Electric has an ROCE of 7.4%. Even though it's in line with the industry average of 6.7%, it's still a low return by itself.

View our latest analysis for Stanley Electric

Above you can see how the current ROCE for Stanley Electric 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 Stanley Electric for free.

What Can We Tell From Stanley Electric's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.4%. The amount of capital employed has increased too, by 57%. So we're very much inspired by what we're seeing at Stanley Electric thanks to its ability to profitably reinvest capital.

Our Take On Stanley Electric's ROCE

To sum it up, Stanley Electric has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 7.3% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing to note, we've identified 1 warning sign with Stanley Electric and understanding it should be part of your investment process.

While Stanley Electric may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.