Investors Could Be Concerned With MINEBEA MITSUMI's (TSE:6479) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at MINEBEA MITSUMI (TSE:6479) and its ROCE trend, we weren't exactly thrilled.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on MINEBEA MITSUMI is:

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

0.06 = JP¥57b ÷ (JP¥1.4t - JP¥458b) (Based on the trailing twelve months to December 2023).

Therefore, MINEBEA MITSUMI has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 7.9%.

Check out our latest analysis for MINEBEA MITSUMI

Above you can see how the current ROCE for MINEBEA MITSUMI compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for MINEBEA MITSUMI .

How Are Returns Trending?

On the surface, the trend of ROCE at MINEBEA MITSUMI doesn't inspire confidence. Over the last five years, returns on capital have decreased to 6.0% from 16% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On MINEBEA MITSUMI's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for MINEBEA MITSUMI. Furthermore the stock has climbed 64% over the last five years, it would appear that investors are upbeat about the future. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

One more thing, we've spotted 1 warning sign facing MINEBEA MITSUMI that you might find interesting.

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.