Disruptors (TSE:6538) Is Experiencing Growth In Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Disruptors' (TSE:6538) returns on capital, so let's have a look.

We've discovered 3 warning signs about Disruptors. View them for free.

Return On Capital Employed (ROCE): What Is It?

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 Disruptors is:

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

0.086 = JP¥236m ÷ (JP¥3.6b - JP¥891m) (Based on the trailing twelve months to December 2024).

Therefore, Disruptors has an ROCE of 8.6%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 15%.

See our latest analysis for Disruptors

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

So How Is Disruptors' ROCE Trending?

Disruptors has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 227% over the trailing one year. The company is now earning JP¥0.09 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 43% less capital than it was one year ago. Disruptors may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On Disruptors' ROCE

In summary, it's great to see that Disruptors has been able to turn things around and earn higher returns on lower amounts of capital. Given the stock has declined 43% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Disruptors, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Disruptors isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.