Capital Investments At Fuji Furukawa Engineering & ConstructionLtd (TSE:1775) Point To A Promising Future

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. So, when we ran our eye over Fuji Furukawa Engineering & ConstructionLtd's (TSE:1775) trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Fuji Furukawa Engineering & ConstructionLtd:

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

0.20 = JP¥8.0b ÷ (JP¥70b - JP¥29b) (Based on the trailing twelve months to December 2023).

Therefore, Fuji Furukawa Engineering & ConstructionLtd has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 7.6% earned by companies in a similar industry.

See our latest analysis for Fuji Furukawa Engineering & ConstructionLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fuji Furukawa Engineering & ConstructionLtd's ROCE against it's prior returns. If you'd like to look at how Fuji Furukawa Engineering & ConstructionLtd has performed in the past in other metrics, you can view this free graph of Fuji Furukawa Engineering & ConstructionLtd's past earnings, revenue and cash flow.

What Can We Tell From Fuji Furukawa Engineering & ConstructionLtd's ROCE Trend?

It's hard not to be impressed by Fuji Furukawa Engineering & ConstructionLtd's returns on capital. The company has consistently earned 20% for the last five years, and the capital employed within the business has risen 60% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Fuji Furukawa Engineering & ConstructionLtd's current liabilities are still rather high at 42% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Fuji Furukawa Engineering & ConstructionLtd's ROCE

In short, we'd argue Fuji Furukawa Engineering & ConstructionLtd has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 323% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 1775 on our platform that is definitely worth checking out.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.