The Returns At Sanwa Holdings (TSE:5929) Aren't Growing

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So, when we ran our eye over Sanwa Holdings' (TSE:5929) trend of ROCE, we liked what we saw.

Understanding 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. 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)

0.18 = JP¥70b ÷ (JP¥524b - JP¥142b) (Based on the trailing twelve months to September 2024).

So, Sanwa Holdings has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Building industry average of 7.6% it's much better.

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 .

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 77% more capital in the last five years, and the returns on that capital have remained stable at 18%. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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 Sanwa Holdings' ROCE

In the end, Sanwa Holdings has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 331% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Sanwa Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 5929 on our platform quite valuable.

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

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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.