Returns On Capital At Dai-Ichi Cutter Kogyo k.k (TSE:1716) Have Hit The Brakes

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Dai-Ichi Cutter Kogyo k.k's (TSE:1716) trend of ROCE, we liked what we saw.

What Is 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. Analysts use this formula to calculate it for Dai-Ichi Cutter Kogyo k.k:

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

0.13 = JP¥2.3b ÷ (JP¥21b - JP¥2.4b) (Based on the trailing twelve months to March 2024).

Thus, Dai-Ichi Cutter Kogyo k.k has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 7.9% it's much better.

View our latest analysis for Dai-Ichi Cutter Kogyo k.k

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Dai-Ichi Cutter Kogyo k.k.

What Does the ROCE Trend For Dai-Ichi Cutter Kogyo k.k Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 63% in that time. 13% is a pretty standard return, and it provides some comfort knowing that Dai-Ichi Cutter Kogyo k.k has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On Dai-Ichi Cutter Kogyo k.k's ROCE

The main thing to remember is that Dai-Ichi Cutter Kogyo k.k has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Dai-Ichi Cutter Kogyo k.k could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 1716 on our platform quite valuable.

While Dai-Ichi Cutter Kogyo k.k may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.

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