C.UyemuraLtd (TSE:4966) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, C.UyemuraLtd (TSE:4966) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for C.UyemuraLtd:

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

0.15 = JP¥15b ÷ (JP¥118b - JP¥20b) (Based on the trailing twelve months to March 2024).

Therefore, C.UyemuraLtd has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 6.7% generated by the Chemicals industry.

View our latest analysis for C.UyemuraLtd

Above you can see how the current ROCE for C.UyemuraLtd 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 C.UyemuraLtd for free.

How Are Returns Trending?

The trends we've noticed at C.UyemuraLtd are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 51% more capital is being employed now too. So we're very much inspired by what we're seeing at C.UyemuraLtd thanks to its ability to profitably reinvest capital.

Our Take On C.UyemuraLtd'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 C.UyemuraLtd has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

C.UyemuraLtd does have some risks though, and we've spotted 1 warning sign for C.UyemuraLtd that you might be interested in.

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.