Returns On Capital Are Showing Encouraging Signs At Fujikura (TSE:5803)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Fujikura's (TSE:5803) returns on capital, so let's have a look.

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

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 Fujikura:

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

0.13 = JP¥69b ÷ (JP¥724b - JP¥200b) (Based on the trailing twelve months to March 2024).

So, Fujikura has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 8.4% it's much better.

Check out our latest analysis for Fujikura

Above you can see how the current ROCE for Fujikura compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Fujikura .

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Fujikura. Over the last five years, returns on capital employed have risen substantially to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 38%. So we're very much inspired by what we're seeing at Fujikura thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 28%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Fujikura has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Fujikura's ROCE

All in all, it's terrific to see that Fujikura is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 1,203% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Fujikura can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Fujikura, we've discovered 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.