Is There More Growth In Store For Fujita Engineering's (TYO:1770) Returns On Capital?

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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Fujita Engineering's (TYO:1770) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Fujita Engineering, this is the formula:

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

0.13 = JP¥1.9b ÷ (JP¥22b - JP¥7.2b) (Based on the trailing twelve months to December 2020).

Thus, Fujita Engineering has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 10% it's much better.

Check out our latest analysis for Fujita Engineering

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fujita Engineering's ROCE against it's prior returns. If you're interested in investigating Fujita Engineering's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The trends we've noticed at Fujita Engineering are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 43% 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.

The Bottom Line On Fujita Engineering's ROCE

All in all, it's terrific to see that Fujita Engineering is reaping the rewards from prior investments and is growing its capital base. And a remarkable 164% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 1 warning sign for Fujita Engineering you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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