Will the Promising Trends At Kyodo Public Relations (TYO:2436) Continue?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Kyodo Public Relations' (TYO:2436) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Kyodo Public Relations:

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

0.095 = JP¥197m ÷ (JP¥3.0b - JP¥965m) (Based on the trailing twelve months to September 2020).

Thus, Kyodo Public Relations has an ROCE of 9.5%. On its own, that's a low figure but it's around the 9.2% average generated by the Media industry.

View our latest analysis for Kyodo Public Relations

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

So How Is Kyodo Public Relations' ROCE Trending?

We're delighted to see that Kyodo Public Relations is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 9.5% on its capital. In addition to that, Kyodo Public Relations is employing 188% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 32%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Kyodo Public Relations' ROCE

To the delight of most shareholders, Kyodo Public Relations has now broken into profitability. Since the stock has returned a staggering 232% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 5 warning signs with Kyodo Public Relations and understanding these should be part of your investment process.

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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