There's Been No Shortage Of Growth Recently For Sanko SangyoLtd's (TSE:7922) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Sanko SangyoLtd (TSE:7922) looks quite promising in regards to its trends of return on capital.

What Is 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. Analysts use this formula to calculate it for Sanko SangyoLtd:

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

0.01 = JP¥92m ÷ (JP¥11b - JP¥2.4b) (Based on the trailing twelve months to June 2024).

So, Sanko SangyoLtd has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.8%.

View our latest analysis for Sanko SangyoLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Sanko SangyoLtd's past further, check out this free graph covering Sanko SangyoLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

Shareholders will be relieved that Sanko SangyoLtd has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 1.0%, which is always encouraging. While returns have increased, the amount of capital employed by Sanko SangyoLtd has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

Our Take On Sanko SangyoLtd's ROCE

In summary, we're delighted to see that Sanko SangyoLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 9.3% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

If you want to continue researching Sanko SangyoLtd, you might be interested to know about the 4 warning signs that our analysis has discovered.

While Sanko SangyoLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.