Why We Like The Returns At Sportsfield (TSE:7080)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Sportsfield (TSE:7080) we really liked what we saw.

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What Is Return On Capital Employed (ROCE)?

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 Sportsfield, this is the formula:

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

0.45 = JP¥874m ÷ (JP¥2.7b - JP¥762m) (Based on the trailing twelve months to December 2024).

Thus, Sportsfield has an ROCE of 45%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

Check out our latest analysis for Sportsfield

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

The Trend Of ROCE

Sportsfield is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 45%. 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 177%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

In summary, it's great to see that Sportsfield 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 solid 81% 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.

On a final note, we've found 1 warning sign for Sportsfield that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.