Returns On Capital - An Important Metric For CB GROUP MANAGEMENT (TYO:9852)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. So on that note, CB GROUP MANAGEMENT (TYO:9852) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on CB GROUP MANAGEMENT is:

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

0.059 = JP¥1.3b ÷ (JP¥48b - JP¥26b) (Based on the trailing twelve months to September 2020).

So, CB GROUP MANAGEMENT has an ROCE of 5.9%. On its own, that's a low figure but it's around the 6.8% average generated by the Retail Distributors industry.

View our latest analysis for CB GROUP MANAGEMENT

Historical performance is a great place to start when researching a stock so above you can see the gauge for CB GROUP MANAGEMENT's ROCE against it's prior returns. If you're interested in investigating CB GROUP MANAGEMENT's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.9%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 25%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Another thing to note, CB GROUP MANAGEMENT has a high ratio of current liabilities to total assets of 54%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On CB GROUP MANAGEMENT's ROCE

All in all, it's terrific to see that CB GROUP MANAGEMENT is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 52% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing CB GROUP MANAGEMENT, we've discovered 2 warning signs that you should be aware of.

While CB GROUP MANAGEMENT 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. 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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