Returns On Capital At Yokota Manufacturing (TYO:6248) Paint An Interesting Picture

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Yokota Manufacturing (TYO:6248) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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. The formula for this calculation on Yokota Manufacturing is:

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

0.10 = JP¥246m ÷ (JP¥2.6b - JP¥200m) (Based on the trailing twelve months to September 2020).

So, Yokota Manufacturing has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 6.9% generated by the Machinery industry.

See our latest analysis for Yokota Manufacturing

Historical performance is a great place to start when researching a stock so above you can see the gauge for Yokota Manufacturing's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Yokota Manufacturing, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. The company has employed 31% more capital in the last five years, and the returns on that capital have remained stable at 10%. 10% is a pretty standard return, and it provides some comfort knowing that Yokota Manufacturing has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Yokota Manufacturing's ROCE

In the end, Yokota Manufacturing has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 59% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to continue researching Yokota Manufacturing, you might be interested to know about the 1 warning sign that our analysis has discovered.

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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