Is There More Growth In Store For Environmental Control CenterLtd's (TYO:4657) Returns On Capital?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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, Environmental Control CenterLtd (TYO:4657) looks quite promising in regards to its trends of return on capital.

Understanding 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 Environmental Control CenterLtd:

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

0.094 = JP¥296m ÷ (JP¥4.9b - JP¥1.7b) (Based on the trailing twelve months to December 2020).

Thus, Environmental Control CenterLtd has an ROCE of 9.4%. On its own, that's a low figure but it's around the 8.4% average generated by the Commercial Services industry.

View our latest analysis for Environmental Control CenterLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Environmental Control CenterLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Environmental Control CenterLtd, check out these free graphs here.

The Trend Of ROCE

Environmental Control CenterLtd's ROCE growth is quite impressive. The figures show that over the last one year, ROCE has grown 99% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

To bring it all together, Environmental Control CenterLtd has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 17% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

On a separate note, we've found 4 warning signs for Environmental Control CenterLtd you'll probably want to know about.

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.

If you decide to trade Environmental Control CenterLtd, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.