Why We Like The Returns At PLANTLtd (TSE:7646)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of PLANTLtd (TSE:7646) looks great, so lets see what the trend can tell us.

Our free stock report includes 2 warning signs investors should be aware of before investing in PLANTLtd. Read for free now.

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 PLANTLtd:

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

0.47 = JP¥12b ÷ (JP¥36b - JP¥12b) (Based on the trailing twelve months to December 2024).

Therefore, PLANTLtd has an ROCE of 47%. That's a fantastic return and not only that, it outpaces the average of 8.8% earned by companies in a similar industry.

View our latest analysis for PLANTLtd

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

How Are Returns Trending?

We're delighted to see that PLANTLtd is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 47% on its capital. While returns have increased, the amount of capital employed by PLANTLtd has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line

In summary, we're delighted to see that PLANTLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 231% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if PLANTLtd can keep these trends up, it could have a bright future ahead.

If you want to continue researching PLANTLtd, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.