Pan Pacific International Holdings (TSE:7532) Shareholders Will Want The ROCE Trajectory To Continue
There are a few key trends to look for if we want to identify the next multi-bagger. 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. With that in mind, we've noticed some promising trends at Pan Pacific International Holdings (TSE:7532) so let's look a bit deeper.
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. Analysts use this formula to calculate it for Pan Pacific International Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = JP¥148b ÷ (JP¥1.5t - JP¥444b) (Based on the trailing twelve months to September 2024).
Thus, Pan Pacific International Holdings has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Multiline Retail industry.
View our latest analysis for Pan Pacific International Holdings
Above you can see how the current ROCE for Pan Pacific International Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Pan Pacific International Holdings .
How Are Returns Trending?
Pan Pacific International Holdings' ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 98% over the last five years. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line 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. Since the stock has returned a staggering 132% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a separate note, we've found 1 warning sign for Pan Pacific International Holdings you'll probably want to know about.
While Pan Pacific International Holdings 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.
About TSE:7532
Excellent balance sheet with proven track record.