We Like These Underlying Return On Capital Trends At Ensuiko Sugar Refining (TSE:2112)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Ensuiko Sugar Refining (TSE:2112) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Ensuiko Sugar Refining, this is the formula:

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

0.13 = JP¥2.4b ÷ (JP¥27b - JP¥8.0b) (Based on the trailing twelve months to September 2024).

Thus, Ensuiko Sugar Refining has an ROCE of 13%. 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 Ensuiko Sugar Refining

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

What The Trend Of ROCE Can Tell Us

Ensuiko Sugar Refining's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 124% in that same time. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

In summary, we're delighted to see that Ensuiko Sugar Refining has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 82% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Ensuiko Sugar Refining does come with some risks, and we've found 3 warning signs that you should be aware of.

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

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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.