What We Make Of UNIVERSAL ENGEISHA's (TYO:6061) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at UNIVERSAL ENGEISHA (TYO:6061) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for UNIVERSAL ENGEISHA, this is the formula:

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

0.14 = JP¥1.2b ÷ (JP¥9.1b - JP¥1.0b) (Based on the trailing twelve months to September 2020).

Thus, UNIVERSAL ENGEISHA has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 7.8% generated by the Commercial Services industry.

See our latest analysis for UNIVERSAL ENGEISHA

Historical performance is a great place to start when researching a stock so above you can see the gauge for UNIVERSAL ENGEISHA's ROCE against it's prior returns. If you'd like to look at how UNIVERSAL ENGEISHA has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

UNIVERSAL ENGEISHA is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 40% 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.

The Bottom Line On UNIVERSAL ENGEISHA'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 UNIVERSAL ENGEISHA has. And with a respectable 93% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if UNIVERSAL ENGEISHA can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing UNIVERSAL ENGEISHA, we've discovered 1 warning sign that you should be aware of.

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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.
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