There's Been No Shortage Of Growth Recently For OpenWork's (TSE:5139) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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.

We've discovered 1 warning sign about OpenWork. View them for free.

What Is 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. Analysts use this formula to calculate it for OpenWork:

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

0.16 = JP¥1.0b ÷ (JP¥7.2b - JP¥783m) (Based on the trailing twelve months to December 2024).

So, OpenWork has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Interactive Media and Services industry average of 14%.

See 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'd like to look at how OpenWork has performed in the past in other metrics, you can view this free graph of OpenWork's past earnings, revenue and cash flow.

What Can We Tell From OpenWork's ROCE Trend?

The trends we've noticed at OpenWork are quite reassuring. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 151% 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.

The Bottom Line

In summary, it's great to see that OpenWork 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. Since the stock has returned a solid 52% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching OpenWork, you might be interested to know about the 1 warning sign that our analysis has discovered.

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. 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.