Here’s What’s Happening With Returns At S.IshimitsuLtd (TYO:2750)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in S.IshimitsuLtd's (TYO:2750) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for S.IshimitsuLtd:

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

0.028 = JP¥470m ÷ (JP¥26b - JP¥9.5b) (Based on the trailing twelve months to September 2020).

So, S.IshimitsuLtd has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 8.7%.

Check out our latest analysis for S.IshimitsuLtd

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

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 2.8%. The amount of capital employed has increased too, by 40%. So we're very much inspired by what we're seeing at S.IshimitsuLtd thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that S.IshimitsuLtd is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 35% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

S.IshimitsuLtd does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is significant...

While S.IshimitsuLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

When trading S.IshimitsuLtd or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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