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. With that in mind, the ROCE of Mitani Sekisan (TSE:5273) looks decent, right now, so lets see what the trend of returns can tell us.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Mitani Sekisan is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = JP¥12b ÷ (JP¥120b - JP¥26b) (Based on the trailing twelve months to March 2024).
Thus, Mitani Sekisan has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 8.2% it's much better.
See our latest analysis for Mitani Sekisan
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Mitani Sekisan has performed in the past in other metrics, you can view this free graph of Mitani Sekisan's past earnings, revenue and cash flow.
How Are Returns Trending?
While the returns on capital are good, they haven't moved much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 42% in that time. 13% is a pretty standard return, and it provides some comfort knowing that Mitani Sekisan has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
In Conclusion...
The main thing to remember is that Mitani Sekisan has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 107% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Mitani Sekisan does have some risks though, and we've spotted 1 warning sign for Mitani Sekisan that you might be interested in.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
About TSE:5273
Flawless balance sheet established dividend payer.
