Isuzu Motors (TSE:7202) Shareholders Will Want The ROCE Trajectory To Continue

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Isuzu Motors (TSE:7202) and its trend of ROCE, we really liked what we saw.

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

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. Analysts use this formula to calculate it for Isuzu Motors:

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

0.14 = JP¥301b ÷ (JP¥3.2t - JP¥1.1t) (Based on the trailing twelve months to June 2024).

So, Isuzu Motors has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 12% generated by the Auto industry.

View our latest analysis for Isuzu Motors

Above you can see how the current ROCE for Isuzu Motors compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Isuzu Motors .

How Are Returns Trending?

Investors would be pleased with what's happening at Isuzu Motors. The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 43%. So we're very much inspired by what we're seeing at Isuzu Motors thanks to its ability to profitably reinvest capital.

The Bottom Line On Isuzu Motors' ROCE

In summary, it's great to see that Isuzu Motors can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Isuzu Motors looks impressive, no company is worth an infinite price. The intrinsic value infographic for 7202 helps visualize whether it is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.