Returns Are Gaining Momentum At Sanwa Holdings (TSE:5929)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Sanwa Holdings (TSE:5929) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Sanwa Holdings, this is the formula:

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

0.19 = JP¥67b ÷ (JP¥491b - JP¥136b) (Based on the trailing twelve months to June 2024).

Thus, Sanwa Holdings has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 7.4% generated by the Building industry.

View our latest analysis for Sanwa Holdings

Above you can see how the current ROCE for Sanwa Holdings 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 Sanwa Holdings .

What Does the ROCE Trend For Sanwa Holdings Tell Us?

Investors would be pleased with what's happening at Sanwa Holdings. The data shows that returns on capital have increased substantially over the last five years to 19%. The amount of capital employed has increased too, by 67%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Sanwa Holdings' ROCE

All in all, it's terrific to see that Sanwa Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 215% 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 Sanwa Holdings can keep these trends up, it could have a bright future ahead.

While Sanwa Holdings looks impressive, no company is worth an infinite price. The intrinsic value infographic for 5929 helps visualize whether it is currently trading for a fair price.

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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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.