Shareholders Would Enjoy A Repeat Of Kotobuki Spirits' (TSE:2222) Recent Growth In Returns

What trends should we look for it we want to identify stocks that can 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Kotobuki Spirits' (TSE:2222) returns on capital, so let's have a look.

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

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 Kotobuki Spirits:

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

0.43 = JP¥15b ÷ (JP¥43b - JP¥8.1b) (Based on the trailing twelve months to December 2023).

Thus, Kotobuki Spirits has an ROCE of 43%. That's a fantastic return and not only that, it outpaces the average of 6.8% earned by companies in a similar industry.

View our latest analysis for Kotobuki Spirits

Above you can see how the current ROCE for Kotobuki Spirits 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 Kotobuki Spirits for free.

How Are Returns Trending?

Kotobuki Spirits is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 43%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 82%. So we're very much inspired by what we're seeing at Kotobuki Spirits thanks to its ability to profitably reinvest capital.

Our Take On Kotobuki Spirits' ROCE

To sum it up, Kotobuki Spirits has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 127% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 2222 that compares the share price and estimated value.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.