Here’s What’s Happening With Returns At Kanda Tsushinki (TYO:1992)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Kanda Tsushinki's (TYO:1992) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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 Kanda Tsushinki:

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

0.099 = JP¥552m ÷ (JP¥7.2b - JP¥1.7b) (Based on the trailing twelve months to December 2020).

Therefore, Kanda Tsushinki has an ROCE of 9.9%. Even though it's in line with the industry average of 9.9%, it's still a low return by itself.

Check out our latest analysis for Kanda Tsushinki

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

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last four years to 9.9%. The amount of capital employed has increased too, by 23%. So we're very much inspired by what we're seeing at Kanda Tsushinki thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Kanda Tsushinki has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Kanda Tsushinki can keep these trends up, it could have a bright future ahead.

Like most companies, Kanda Tsushinki does come with some risks, and we've found 1 warning sign that you should be aware of.

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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