Shareholders Would Enjoy A Repeat Of gremzInc's (TSE:3150) Recent Growth In Returns

There are a few key trends to look for if we want to identify the next 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at gremzInc's (TSE:3150) look very promising so lets take a look.

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. Analysts use this formula to calculate it for gremzInc:

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

0.37 = JP¥5.5b ÷ (JP¥20b - JP¥5.5b) (Based on the trailing twelve months to December 2023).

Thus, gremzInc has an ROCE of 37%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 9.1%.

Check out our latest analysis for gremzInc

In the above chart we have measured gremzInc'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 gremzInc .

What Does the ROCE Trend For gremzInc Tell Us?

gremzInc is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 37%. 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 226%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On gremzInc's ROCE

In summary, it's great to see that gremzInc can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 129% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 1 warning sign for gremzInc you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.