Returns On Capital At Toyo Sugar Refining (TSE:2107) Have Hit The Brakes

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. That's why when we briefly looked at Toyo Sugar Refining's (TSE:2107) ROCE trend, we were pretty happy with what we saw.

What Is 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. The formula for this calculation on Toyo Sugar Refining is:

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

0.11 = JP¥1.3b ÷ (JP¥14b - JP¥2.1b) (Based on the trailing twelve months to December 2024).

Therefore, Toyo Sugar Refining has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.3% it's much better.

See our latest analysis for Toyo Sugar Refining

Historical performance is a great place to start when researching a stock so above you can see the gauge for Toyo Sugar Refining's ROCE against it's prior returns. If you're interested in investigating Toyo Sugar Refining's past further, check out this free graph covering Toyo Sugar Refining's past earnings, revenue and cash flow.

What Does the ROCE Trend For Toyo Sugar Refining Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 22% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Toyo Sugar Refining has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

In the end, Toyo Sugar Refining has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 111% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing: We've identified 3 warning signs with Toyo Sugar Refining (at least 1 which is a bit concerning) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.