Teikoku Electric Mfg.Co.Ltd's (TSE:6333) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Teikoku Electric Mfg.Co.Ltd (TSE:6333) so let's look a bit deeper.

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 Teikoku Electric Mfg.Co.Ltd:

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

0.14 = JP¥4.9b ÷ (JP¥42b - JP¥7.7b) (Based on the trailing twelve months to March 2024).

So, Teikoku Electric Mfg.Co.Ltd has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 8.0% it's much better.

View our latest analysis for Teikoku Electric Mfg.Co.Ltd

In the above chart we have measured Teikoku Electric Mfg.Co.Ltd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Teikoku Electric Mfg.Co.Ltd .

What Does the ROCE Trend For Teikoku Electric Mfg.Co.Ltd Tell Us?

We like the trends that we're seeing from Teikoku Electric Mfg.Co.Ltd. The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 34%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Teikoku Electric Mfg.Co.Ltd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Teikoku Electric Mfg.Co.Ltd has. And a remarkable 147% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Teikoku Electric Mfg.Co.Ltd can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Teikoku Electric Mfg.Co.Ltd you'll probably want to know about.

While Teikoku Electric Mfg.Co.Ltd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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