We Like These Underlying Return On Capital Trends At Isetan Mitsukoshi Holdings (TSE:3099)

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Isetan Mitsukoshi Holdings (TSE:3099) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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 Isetan Mitsukoshi Holdings is:

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

0.065 = JP¥54b ÷ (JP¥1.2t - JP¥393b) (Based on the trailing twelve months to March 2024).

So, Isetan Mitsukoshi Holdings has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Multiline Retail industry average of 9.0%.

See our latest analysis for Isetan Mitsukoshi Holdings

In the above chart we have measured Isetan Mitsukoshi Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Isetan Mitsukoshi Holdings .

How Are Returns Trending?

Isetan Mitsukoshi Holdings has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 96% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Isetan Mitsukoshi Holdings' ROCE

To bring it all together, Isetan Mitsukoshi Holdings has done well to increase the returns it's generating from its capital employed. And a remarkable 257% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about Isetan Mitsukoshi Holdings, we've spotted 2 warning signs, and 1 of them is concerning.

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.

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