OpenWork (TSE:5139) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at OpenWork (TSE:5139) and its trend of ROCE, we really liked what we saw.

What Is 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 OpenWork, this is the formula:

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

0.13 = JP¥816m ÷ (JP¥6.6b - JP¥496m) (Based on the trailing twelve months to June 2024).

So, OpenWork has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

View our latest analysis for OpenWork

Historical performance is a great place to start when researching a stock so above you can see the gauge for OpenWork'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 OpenWork.

So How Is OpenWork's ROCE Trending?

Investors would be pleased with what's happening at OpenWork. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 127% more capital is being employed now too. So we're very much inspired by what we're seeing at OpenWork thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, OpenWork has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 35% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to know some of the risks facing OpenWork we've found 2 warning signs (1 can't be ignored!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.