Returns On Capital Are Showing Encouraging Signs At Mitsubishi Logisnext (TSE:7105)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So on that note, Mitsubishi Logisnext (TSE:7105) looks quite promising in regards to its trends of return on capital.

We've discovered 3 warning signs about Mitsubishi Logisnext. View them for free.

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. The formula for this calculation on Mitsubishi Logisnext is:

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

0.073 = JP¥25b ÷ (JP¥545b - JP¥205b) (Based on the trailing twelve months to December 2024).

Thus, Mitsubishi Logisnext has an ROCE of 7.3%. In absolute terms, that's a low return but it's around the Machinery industry average of 7.8%.

See our latest analysis for Mitsubishi Logisnext

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 Mitsubishi Logisnext's past further, check out this free graph covering Mitsubishi Logisnext's past earnings, revenue and cash flow.

What Does the ROCE Trend For Mitsubishi Logisnext Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.3%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 47%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Mitsubishi Logisnext's ROCE

To sum it up, Mitsubishi Logisnext has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Mitsubishi Logisnext can keep these trends up, it could have a bright future ahead.

On a final note, we've found 3 warning signs for Mitsubishi Logisnext that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.