Is Maruto Sangyo (FKSE:7894) A Future Multi-bagger?

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 on that note, Maruto Sangyo (FKSE:7894) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Maruto Sangyo:

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

0.11 = JP¥936m ÷ (JP¥14b - JP¥5.6b) (Based on the trailing twelve months to August 2020).

Thus, Maruto Sangyo has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.6% generated by the Packaging industry.

View our latest analysis for Maruto Sangyo

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'd like to look at how Maruto Sangyo has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Investors would be pleased with what's happening at Maruto Sangyo. Over the last five years, returns on capital employed have risen substantially to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 58% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, Maruto Sangyo has decreased current liabilities to 40% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Maruto Sangyo has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

All in all, it's terrific to see that Maruto Sangyo is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 65% 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.

If you want to continue researching Maruto Sangyo, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Maruto Sangyo may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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