We Like These Underlying Return On Capital Trends At PuequLTD (TSE:9264)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, PuequLTD (TSE:9264) looks quite promising in regards to its trends of return on capital.

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 PuequLTD is:

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

0.10 = JP¥625m ÷ (JP¥10b - JP¥4.0b) (Based on the trailing twelve months to February 2024).

Therefore, PuequLTD has an ROCE of 10.0%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 8.0%.

See our latest analysis for PuequLTD

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of PuequLTD.

What Does the ROCE Trend For PuequLTD Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 10.0%. Basically the business is earning more per dollar of capital invested and in addition to that, 55% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On PuequLTD'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 PuequLTD has. Astute investors may have an opportunity here because the stock has declined 38% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One final note, you should learn about the 5 warning signs we've spotted with PuequLTD (including 3 which are a bit concerning) .

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.