Investors Met With Slowing Returns on Capital At MISUMI Group (TSE:9962)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of MISUMI Group (TSE:9962) looks decent, right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for MISUMI Group:

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

0.12 = JP¥43b ÷ (JP¥400b - JP¥48b) (Based on the trailing twelve months to September 2024).

Therefore, MISUMI Group has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Machinery industry.

See our latest analysis for MISUMI Group

In the above chart we have measured MISUMI Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for MISUMI Group .

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 62% more capital in the last five years, and the returns on that capital have remained stable at 12%. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

To sum it up, MISUMI Group has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock hasn't provided much growth to shareholders in the way of total returns. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you're still interested in MISUMI Group it's worth checking out our FREE intrinsic value approximation for 9962 to see if it's trading at an attractive price in other respects.

While MISUMI Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.