Returns Are Gaining Momentum At Sanyo Industries (TSE:5958)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Sanyo Industries' (TSE:5958) returns on capital, so let's have a look.

What Is 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. Analysts use this formula to calculate it for Sanyo Industries:

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

0.12 = JP¥2.5b ÷ (JP¥31b - JP¥9.9b) (Based on the trailing twelve months to March 2024).

Therefore, Sanyo Industries has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Building industry average of 7.5% it's much better.

Check out our latest analysis for Sanyo Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Sanyo Industries' past further, check out this free graph covering Sanyo Industries' past earnings, revenue and cash flow.

The Trend Of ROCE

Sanyo Industries is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 39%. So we're very much inspired by what we're seeing at Sanyo Industries thanks to its ability to profitably reinvest capital.

Our Take On Sanyo Industries' ROCE

All in all, it's terrific to see that Sanyo Industries is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 66% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Sanyo Industries does have some risks though, and we've spotted 3 warning signs for Sanyo Industries that you might be interested in.

While Sanyo Industries 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.

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