Management SolutionsLtd (TSE:7033) Is Investing Its Capital With Increasing Efficiency

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Management SolutionsLtd (TSE:7033) we really liked what we saw.

Understanding 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. The formula for this calculation on Management SolutionsLtd is:

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

0.43 = JP¥2.3b ÷ (JP¥7.2b - JP¥2.0b) (Based on the trailing twelve months to April 2024).

Therefore, Management SolutionsLtd has an ROCE of 43%. 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 Management SolutionsLtd

In the above chart we have measured Management SolutionsLtd'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 Management SolutionsLtd .

What Does the ROCE Trend For Management SolutionsLtd Tell Us?

Management SolutionsLtd is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 43%. 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 201%. So we're very much inspired by what we're seeing at Management SolutionsLtd thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Management SolutionsLtd 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 solid 67% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Management SolutionsLtd does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is potentially serious...

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.

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