What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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, JTEC (TSE:3446) looks quite promising in regards to its trends of return on capital.
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 JTEC:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.091 = JP¥286m ÷ (JP¥3.6b - JP¥413m) (Based on the trailing twelve months to June 2024).
Therefore, JTEC has an ROCE of 9.1%. On its own, that's a low figure but it's around the 11% average generated by the Medical Equipment industry.
See our latest analysis for JTEC
Above you can see how the current ROCE for JTEC compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for JTEC .
How Are Returns Trending?
JTEC has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses two years ago, but has managed to turn it around and as we saw earlier is now earning 9.1%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
The Bottom Line
In summary, we're delighted to see that JTEC has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 57% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.
On a final note, we found 2 warning signs for JTEC (1 can't be ignored) you should be aware of.
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.
About TSE:3446
JTEC
Designs, manufactures, and sells X-ray mirrors for synchrotron facilities in Japan.
High growth potential with excellent balance sheet.
