Mitsui Mining & Smelting (TSE:5706) Is Looking To Continue Growing Its Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Mitsui Mining & Smelting's (TSE:5706) returns on capital, so let's have a look.

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. To calculate this metric for Mitsui Mining & Smelting, this is the formula:

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

0.073 = JP¥32b ÷ (JP¥641b - JP¥204b) (Based on the trailing twelve months to March 2024).

Thus, Mitsui Mining & Smelting has an ROCE of 7.3%. On its own that's a low return, but compared to the average of 5.9% generated by the Metals and Mining industry, it's much better.

Check out our latest analysis for Mitsui Mining & Smelting

Above you can see how the current ROCE for Mitsui Mining & Smelting compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Mitsui Mining & Smelting .

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 7.3%. The amount of capital employed has increased too, by 27%. 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.

The Key Takeaway

All in all, it's terrific to see that Mitsui Mining & Smelting is reaping the rewards from prior investments and is growing its capital base. 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 Mitsui Mining & Smelting can keep these trends up, it could have a bright future ahead.

If you want to continue researching Mitsui Mining & Smelting, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Mitsui Mining & Smelting 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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