Iwatsuka Confectionery's (TSE:2221) Returns On Capital Are Heading Higher

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Iwatsuka Confectionery (TSE:2221) and its trend of ROCE, we really liked what we saw.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Iwatsuka Confectionery:

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

0.0076 = JP¥654m ÷ (JP¥90b - JP¥4.7b) (Based on the trailing twelve months to December 2024).

Thus, Iwatsuka Confectionery has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Food industry average of 6.9%.

See our latest analysis for Iwatsuka Confectionery

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Iwatsuka Confectionery's past further, check out this free graph covering Iwatsuka Confectionery's past earnings, revenue and cash flow.

What Can We Tell From Iwatsuka Confectionery's ROCE Trend?

While there are companies with higher returns on capital out there, we still find the trend at Iwatsuka Confectionery promising. 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 535% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In Conclusion...

To bring it all together, Iwatsuka Confectionery has done well to increase the returns it's generating from its capital employed. And with a respectable 88% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Iwatsuka Confectionery looks impressive, no company is worth an infinite price. The intrinsic value infographic for 2221 helps visualize whether it is currently trading for a fair price.

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.