Pan Pacific International Holdings (TSE:7532) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at Pan Pacific International Holdings (TSE:7532) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Pan Pacific International Holdings, this is the formula:

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

0.12 = JP¥134b ÷ (JP¥1.5t - JP¥364b) (Based on the trailing twelve months to March 2024).

Therefore, Pan Pacific International Holdings has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.0% generated by the Multiline Retail industry.

See our latest analysis for Pan Pacific International Holdings

In the above chart we have measured Pan Pacific International 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 Pan Pacific International Holdings .

How Are Returns Trending?

Pan Pacific International Holdings is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 100% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Pan Pacific International Holdings' ROCE

To sum it up, Pan Pacific International Holdings is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 145% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 1 warning sign with Pan Pacific International Holdings and understanding this should be part of your investment process.

While Pan Pacific International Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.