Returns At TokyotokeibaLtd (TSE:9672) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So when we looked at TokyotokeibaLtd (TSE:9672) and its trend of ROCE, we really liked what we saw.

What Is 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. To calculate this metric for TokyotokeibaLtd, this is the formula:

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

0.12 = JP¥14b ÷ (JP¥119b - JP¥8.5b) (Based on the trailing twelve months to June 2024).

So, TokyotokeibaLtd has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 9.8% it's much better.

View our latest analysis for TokyotokeibaLtd

In the above chart we have measured TokyotokeibaLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for TokyotokeibaLtd .

The Trend Of ROCE

The trends we've noticed at TokyotokeibaLtd are quite reassuring. 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, 28% more capital is being employed now too. So we're very much inspired by what we're seeing at TokyotokeibaLtd thanks to its ability to profitably reinvest capital.

Our Take On TokyotokeibaLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what TokyotokeibaLtd has. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 37% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing, we've spotted 1 warning sign facing TokyotokeibaLtd that you might find interesting.

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

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.