Shareholders Would Enjoy A Repeat Of Recruit Holdings' (TSE:6098) Recent Growth In Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Recruit Holdings' (TSE:6098) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Recruit Holdings, this is the formula:

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

0.24 = JP¥510b ÷ (JP¥2.9t - JP¥761b) (Based on the trailing twelve months to December 2024).

Thus, Recruit Holdings has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 16%.

View our latest analysis for Recruit Holdings

Above you can see how the current ROCE for Recruit Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Recruit Holdings .

The Trend Of ROCE

The trends we've noticed at Recruit Holdings are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. 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 43%. So we're very much inspired by what we're seeing at Recruit Holdings thanks to its ability to profitably reinvest capital.

Our Take On Recruit Holdings' ROCE

To sum it up, Recruit Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 174% 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.

Recruit Holdings does have some risks though, and we've spotted 1 warning sign for Recruit Holdings that you might be interested in.

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.