BANDAI NAMCO Holdings (TSE:7832) Knows How To Allocate Capital Effectively

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. And in light of that, the trends we're seeing at BANDAI NAMCO Holdings' (TSE:7832) look very promising so lets take a look.

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. Analysts use this formula to calculate it for BANDAI NAMCO Holdings:

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

0.22 = JP¥192b ÷ (JP¥1.1t - JP¥272b) (Based on the trailing twelve months to December 2024).

So, BANDAI NAMCO Holdings has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

See our latest analysis for BANDAI NAMCO Holdings

Above you can see how the current ROCE for BANDAI NAMCO Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering BANDAI NAMCO Holdings for free.

What Does the ROCE Trend For BANDAI NAMCO Holdings Tell Us?

The trends we've noticed at BANDAI NAMCO Holdings are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 22%. The amount of capital employed has increased too, by 78%. So we're very much inspired by what we're seeing at BANDAI NAMCO Holdings thanks to its ability to profitably reinvest capital.

The Bottom Line On BANDAI NAMCO Holdings' ROCE

To sum it up, BANDAI NAMCO Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 209% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

BANDAI NAMCO Holdings does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is significant...

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.