Returns At Sumitomo Forestry (TSE:1911) Are On The Way Up

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Sumitomo Forestry's (TSE:1911) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Sumitomo Forestry:

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

0.12 = JP¥184b ÷ (JP¥2.2t - JP¥662b) (Based on the trailing twelve months to June 2025).

Therefore, Sumitomo Forestry has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Consumer Durables industry.

Check out our latest analysis for Sumitomo Forestry

Above you can see how the current ROCE for Sumitomo Forestry 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 Sumitomo Forestry .

What Does the ROCE Trend For Sumitomo Forestry Tell Us?

We like the trends that we're seeing from Sumitomo Forestry. The data shows that returns on capital have increased substantially over the last five years to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 136% more capital is being employed now too. So we're very much inspired by what we're seeing at Sumitomo Forestry thanks to its ability to profitably reinvest capital.

The Bottom Line On Sumitomo Forestry's ROCE

In summary, it's great to see that Sumitomo Forestry 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. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Sumitomo Forestry, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.

While Sumitomo Forestry 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.