The Return Trends At Mitsubishi Gas Chemical Company (TSE:4182) Look Promising

What are the early trends we should look for to identify a stock that could 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 when we looked at Mitsubishi Gas Chemical Company (TSE:4182) and its trend of ROCE, we really liked what we saw.

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What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Mitsubishi Gas Chemical Company:

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

0.063 = JP¥54b ÷ (JP¥1.1t - JP¥272b) (Based on the trailing twelve months to December 2024).

Therefore, Mitsubishi Gas Chemical Company has an ROCE of 6.3%. In absolute terms, that's a low return but it's around the Chemicals industry average of 7.3%.

Check out our latest analysis for Mitsubishi Gas Chemical Company

Above you can see how the current ROCE for Mitsubishi Gas Chemical Company 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 Mitsubishi Gas Chemical Company for free.

What Does the ROCE Trend For Mitsubishi Gas Chemical Company Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.3%. Basically the business is earning more per dollar of capital invested and in addition to that, 38% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Mitsubishi Gas Chemical Company's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Mitsubishi Gas Chemical Company has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Mitsubishi Gas Chemical Company can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Mitsubishi Gas Chemical Company and understanding this should be part of your investment process.

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.