Many Would Be Jealous Of Seria's (TYO:2782) Returns On Capital
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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at Seria (TYO:2782), we liked what we saw.
Return On Capital Employed (ROCE): What is it?
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. The formula for this calculation on Seria is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.22 = JP¥19b ÷ (JP¥106b - JP¥20b) (Based on the trailing twelve months to September 2020).
Therefore, Seria has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Multiline Retail industry average of 8.5%.
Check out our latest analysis for Seria
Historical performance is a great place to start when researching a stock so above you can see the gauge for Seria's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Seria, check out these free graphs here.
What Can We Tell From Seria's ROCE Trend?
In terms of Seria's history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 22% and the business has deployed 115% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Seria can keep this up, we'd be very optimistic about its future.
What We Can Learn From Seria's ROCE
In short, we'd argue Seria has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. However, over the last five years, the stock has only delivered a 35% return to shareholders who held over that period. So to determine if Seria is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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This article by Simply Wall St is general in nature. 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.
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About TSE:2782
Flawless balance sheet with proven track record.