There's Been No Shortage Of Growth Recently For Japan Petroleum Exploration's (TSE:1662) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So when we looked at Japan Petroleum Exploration (TSE:1662) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Japan Petroleum Exploration:

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

0.09 = JP¥55b ÷ (JP¥661b - JP¥49b) (Based on the trailing twelve months to March 2024).

Thus, Japan Petroleum Exploration has an ROCE of 9.0%. Even though it's in line with the industry average of 8.8%, it's still a low return by itself.

View our latest analysis for Japan Petroleum Exploration

Above you can see how the current ROCE for Japan Petroleum Exploration 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 Japan Petroleum Exploration for free.

The Trend Of ROCE

Japan Petroleum Exploration has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 2,329% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Japan Petroleum Exploration's ROCE

To bring it all together, Japan Petroleum Exploration has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 214% 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 Japan Petroleum Exploration can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for Japan Petroleum Exploration (1 can't be ignored) 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.

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