What are the early trends we should look for to identify a stock that could 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Maeda Kosen's (TSE:7821) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
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. To calculate this metric for Maeda Kosen, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = JP¥12b ÷ (JP¥85b - JP¥13b) (Based on the trailing twelve months to December 2024).
Therefore, Maeda Kosen has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Basic Materials industry.
See our latest analysis for Maeda Kosen
In the above chart we have measured Maeda Kosen's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Maeda Kosen .
So How Is Maeda Kosen's ROCE Trending?
Investors would be pleased with what's happening at Maeda Kosen. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 54%. So we're very much inspired by what we're seeing at Maeda Kosen thanks to its ability to profitably reinvest capital.
Our Take On Maeda Kosen's ROCE
All in all, it's terrific to see that Maeda Kosen 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. Therefore, we think it would be worth your time to check if these trends are going to continue.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 7821 on our platform that is definitely worth checking out.
While Maeda Kosen 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.
About TSE:7821
Maeda Kosen
Manufactures and sells civil engineering materials, construction materials, agricultural materials, and nonwoven fabrics in Japan.
Flawless balance sheet with solid track record.
