Returns On Capital Are Showing Encouraging Signs At Mizuno (TSE:8022)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Mizuno (TSE:8022) looks quite promising in regards to its trends of return on capital.

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 Mizuno, this is the formula:

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

0.10 = JP¥17b ÷ (JP¥196b - JP¥37b) (Based on the trailing twelve months to December 2023).

Therefore, Mizuno has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 13% generated by the Leisure industry.

See our latest analysis for Mizuno

Above you can see how the current ROCE for Mizuno 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 Mizuno for free.

The Trend Of ROCE

The trends we've noticed at Mizuno are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 36%. So we're very much inspired by what we're seeing at Mizuno thanks to its ability to profitably reinvest capital.

Our Take On Mizuno's ROCE

To sum it up, Mizuno has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Mizuno can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for Mizuno (1 is potentially serious) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.