Maruichi Steel Tube (TSE:5463) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Maruichi Steel Tube (TSE:5463) looks quite promising in regards to its trends of return on capital.

Understanding 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. To calculate this metric for Maruichi Steel Tube, this is the formula:

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

0.091 = JP¥34b ÷ (JP¥417b - JP¥51b) (Based on the trailing twelve months to December 2023).

Therefore, Maruichi Steel Tube has an ROCE of 9.1%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 6.0%.

See our latest analysis for Maruichi Steel Tube

Above you can see how the current ROCE for Maruichi Steel Tube compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Maruichi Steel Tube .

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 9.1%. The amount of capital employed has increased too, by 30%. So we're very much inspired by what we're seeing at Maruichi Steel Tube thanks to its ability to profitably reinvest capital.

Our Take On Maruichi Steel Tube's ROCE

To sum it up, Maruichi Steel Tube 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 53% 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.

If you'd like to know about the risks facing Maruichi Steel Tube, we've discovered 1 warning sign that you should be aware of.

While Maruichi Steel Tube may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.