Returns Are Gaining Momentum At Musashi Seimitsu Industry (TSE:7220)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Speaking of which, we noticed some great changes in Musashi Seimitsu Industry's (TSE:7220) returns on capital, so let's have a look.

Understanding 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 Musashi Seimitsu Industry, this is the formula:

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

0.10 = JP¥19b ÷ (JP¥286b - JP¥101b) (Based on the trailing twelve months to December 2024).

Therefore, Musashi Seimitsu Industry has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 6.2% generated by the Auto Components industry.

Check out our latest analysis for Musashi Seimitsu Industry

Above you can see how the current ROCE for Musashi Seimitsu Industry 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 Musashi Seimitsu Industry for free.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Musashi Seimitsu Industry. Over the last five years, returns on capital employed have risen substantially to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 23% more capital is being employed now too. So we're very much inspired by what we're seeing at Musashi Seimitsu Industry thanks to its ability to profitably reinvest capital.

Our Take On Musashi Seimitsu Industry's 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 Musashi Seimitsu Industry has. And a remarkable 343% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Musashi Seimitsu Industry does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

While Musashi Seimitsu Industry 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.