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? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, the ROCE of Management SolutionsLtd (TSE:7033) looks great, so lets see what the trend can tell us.

What Is 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. The formula for this calculation on Management SolutionsLtd is:

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

0.44 = JP¥2.4b ÷ (JP¥8.2b - JP¥2.8b) (Based on the trailing twelve months to October 2024).

Thus, Management SolutionsLtd has an ROCE of 44%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

See our latest analysis for Management SolutionsLtd

Above you can see how the current ROCE for Management SolutionsLtd 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 Management SolutionsLtd .

So How Is Management SolutionsLtd's ROCE Trending?

The trends we've noticed at Management SolutionsLtd are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 44%. 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 185%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 34% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

What We Can Learn From Management SolutionsLtd's ROCE

All in all, it's terrific to see that Management SolutionsLtd is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 48% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

Management SolutionsLtd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.