We Think SUNNY SIDE UP GROUP (TSE:2180) Might Have The DNA Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 SUNNY SIDE UP GROUP's (TSE:2180) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on SUNNY SIDE UP GROUP is:

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

0.29 = JP¥1.6b ÷ (JP¥10b - JP¥4.9b) (Based on the trailing twelve months to June 2025).

So, SUNNY SIDE UP GROUP has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

View our latest analysis for SUNNY SIDE UP GROUP

Historical performance is a great place to start when researching a stock so above you can see the gauge for SUNNY SIDE UP GROUP's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of SUNNY SIDE UP GROUP.

What Does the ROCE Trend For SUNNY SIDE UP GROUP Tell Us?

We like the trends that we're seeing from SUNNY SIDE UP GROUP. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 29%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 57%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 47% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

Our Take On SUNNY SIDE UP GROUP's ROCE

In summary, it's great to see that SUNNY SIDE UP GROUP can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 49% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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SUNNY SIDE UP GROUP is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.