Ajinomoto (TSE:2802) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at Ajinomoto (TSE:2802) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Ajinomoto:

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

0.11 = JP¥147b ÷ (JP¥1.8t - JP¥464b) (Based on the trailing twelve months to June 2024).

Therefore, Ajinomoto has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.0% generated by the Food industry.

See our latest analysis for Ajinomoto

In the above chart we have measured Ajinomoto's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Ajinomoto .

What Does the ROCE Trend For Ajinomoto Tell Us?

Ajinomoto is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The amount of capital employed has increased too, by 21%. So we're very much inspired by what we're seeing at Ajinomoto thanks to its ability to profitably reinvest capital.

The Bottom Line On Ajinomoto's ROCE

All in all, it's terrific to see that Ajinomoto is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Ajinomoto looks impressive, no company is worth an infinite price. The intrinsic value infographic for 2802 helps visualize whether it is currently trading for a fair price.

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.