Ishizuka Glass (TSE:5204) Shareholders Will Want The ROCE Trajectory To Continue

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, we've noticed some promising trends at Ishizuka Glass (TSE:5204) so let's look a bit deeper.

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. The formula for this calculation on Ishizuka Glass is:

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

0.076 = JP¥5.1b ÷ (JP¥93b - JP¥26b) (Based on the trailing twelve months to December 2023).

Thus, Ishizuka Glass has an ROCE of 7.6%. On its own that's a low return, but compared to the average of 5.1% generated by the Packaging industry, it's much better.

Check out our latest analysis for Ishizuka Glass

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ishizuka Glass' ROCE against it's prior returns. If you'd like to look at how Ishizuka Glass has performed in the past in other metrics, you can view this free graph of Ishizuka Glass' past earnings, revenue and cash flow.

How Are Returns Trending?

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 7.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 21% 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.

Our Take On Ishizuka Glass' ROCE

To sum it up, Ishizuka Glass has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 77% 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.

One more thing: We've identified 4 warning signs with Ishizuka Glass (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

While Ishizuka Glass 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.