We Like These Underlying Return On Capital Trends At Carlit Holdings (TSE:4275)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Carlit Holdings (TSE:4275) 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 Carlit Holdings:

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

0.076 = JP¥3.4b ÷ (JP¥55b - JP¥11b) (Based on the trailing twelve months to March 2024).

So, Carlit Holdings has an ROCE of 7.6%. On its own, that's a low figure but it's around the 6.5% average generated by the Chemicals industry.

See our latest analysis for Carlit Holdings

In the above chart we have measured Carlit Holdings' 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 Carlit Holdings .

The Trend Of ROCE

Carlit Holdings is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 25% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Carlit Holdings' ROCE

As discussed above, Carlit Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. 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 Carlit Holdings can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Carlit Holdings you'll probably want to know about.

While Carlit Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.

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