What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at Fanuc (TSE:6954), it didn't seem to tick all of these boxes.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Fanuc:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.079 = JP¥142b ÷ (JP¥2.0t - JP¥157b) (Based on the trailing twelve months to June 2024).
Thus, Fanuc has an ROCE of 7.9%. Even though it's in line with the industry average of 7.9%, it's still a low return by itself.
Check out our latest analysis for Fanuc
Above you can see how the current ROCE for Fanuc 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 Fanuc .
What The Trend Of ROCE Can Tell Us
In terms of Fanuc's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 7.9% and the business has deployed 29% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
The Bottom Line On Fanuc's ROCE
As we've seen above, Fanuc's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 5.4% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
One more thing to note, we've identified 1 warning sign with Fanuc and understanding it should be part of your investment process.
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.
About TSE:6954
Fanuc
Provides factory automation products in Japan, the Americas, Europe, China, the rest of Asia, and internationally.
Flawless balance sheet average dividend payer.
