Why The 32% Return On Capital At Bank of InnovationInc (TSE:4393) Should Have Your Attention

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Bank of InnovationInc (TSE:4393) 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. The formula for this calculation on Bank of InnovationInc is:

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

0.32 = JP¥1.5b ÷ (JP¥6.0b - JP¥1.4b) (Based on the trailing twelve months to June 2024).

Thus, Bank of InnovationInc has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 9.7% earned by companies in a similar industry.

Check out our latest analysis for Bank of InnovationInc

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

What Does the ROCE Trend For Bank of InnovationInc Tell Us?

Bank of InnovationInc has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making three years ago but is is now generating 32% on its capital. And unsurprisingly, like most companies trying to break into the black, Bank of InnovationInc is utilizing 158% more capital than it was three years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Bank of InnovationInc's ROCE

To the delight of most shareholders, Bank of InnovationInc has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 100% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 2 warning signs we've spotted with Bank of InnovationInc (including 1 which doesn't sit too well with us) .

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.