We Like These Underlying Return On Capital Trends At Ishihara Sangyo KaishaLtd (TSE:4028)

There are a few key trends to look for if we want to identify the next multi-bagger. 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 Ishihara Sangyo KaishaLtd's (TSE:4028) returns on capital, so let's have a look.

We've discovered 2 warning signs about Ishihara Sangyo KaishaLtd. View them for free.

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 Ishihara Sangyo KaishaLtd:

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

0.078 = JP¥13b ÷ (JP¥219b - JP¥55b) (Based on the trailing twelve months to December 2024).

So, Ishihara Sangyo KaishaLtd has an ROCE of 7.8%. On its own, that's a low figure but it's around the 7.2% average generated by the Chemicals industry.

Check out our latest analysis for Ishihara Sangyo KaishaLtd

In the above chart we have measured Ishihara Sangyo KaishaLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Ishihara Sangyo KaishaLtd .

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.8%. 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 39%. So we're very much inspired by what we're seeing at Ishihara Sangyo KaishaLtd thanks to its ability to profitably reinvest capital.

The Bottom Line On Ishihara Sangyo KaishaLtd's ROCE

In summary, it's great to see that Ishihara Sangyo KaishaLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 234% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Ishihara Sangyo KaishaLtd can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Ishihara Sangyo KaishaLtd that we think you should be aware of.

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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.