Is There More Growth In Store For Toei AnimationLtd's (TYO:4816) 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? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Toei AnimationLtd (TYO:4816) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Toei AnimationLtd:

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

0.19 = JP¥16b ÷ (JP¥100b - JP¥15b) (Based on the trailing twelve months to December 2020).

Thus, Toei AnimationLtd has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 15% generated by the Entertainment industry.

See our latest analysis for Toei AnimationLtd

Above you can see how the current ROCE for Toei AnimationLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Toei AnimationLtd here for free.

So How Is Toei AnimationLtd's ROCE Trending?

Investors would be pleased with what's happening at Toei AnimationLtd. Over the last five years, returns on capital employed have risen substantially to 19%. The amount of capital employed has increased too, by 83%. So we're very much inspired by what we're seeing at Toei AnimationLtd thanks to its ability to profitably reinvest capital.

Our Take On Toei AnimationLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Toei AnimationLtd has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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 1 warning sign with Toei AnimationLtd and understanding it 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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This article by Simply Wall St is general in nature. 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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