We Like These Underlying Return On Capital Trends At Sanyo Engineering & Construction (TSE:1960)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. So on that note, Sanyo Engineering & Construction (TSE:1960) looks quite promising in regards to its trends of return on capital.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Sanyo Engineering & Construction, this is the formula:

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

0.067 = JP¥2.1b ÷ (JP¥51b - JP¥19b) (Based on the trailing twelve months to June 2025).

Therefore, Sanyo Engineering & Construction has an ROCE of 6.7%. Ultimately, that's a low return and it under-performs the Construction industry average of 9.9%.

See our latest analysis for Sanyo Engineering & Construction

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

What Does the ROCE Trend For Sanyo Engineering & Construction Tell Us?

Sanyo Engineering & Construction is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 263% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To bring it all together, Sanyo Engineering & Construction has done well to increase the returns it's generating from its capital employed. And a remarkable 129% 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.

One more thing: We've identified 2 warning signs with Sanyo Engineering & Construction (at least 1 which is potentially serious) , and understanding these would certainly be useful.

While Sanyo Engineering & Construction isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.