Internetworking and Broadband ConsultingLtd (TSE:3920) Is Looking To Continue Growing Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Internetworking and Broadband ConsultingLtd (TSE:3920) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Internetworking and Broadband ConsultingLtd, this is the formula:

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

0.17 = JP¥319m ÷ (JP¥3.1b - JP¥1.2b) (Based on the trailing twelve months to June 2024).

So, Internetworking and Broadband ConsultingLtd has an ROCE of 17%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Software industry average of 15%.

See our latest analysis for Internetworking and Broadband ConsultingLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Internetworking and Broadband ConsultingLtd's past further, check out this free graph covering Internetworking and Broadband ConsultingLtd's past earnings, revenue and cash flow.

So How Is Internetworking and Broadband ConsultingLtd's ROCE Trending?

Internetworking and Broadband ConsultingLtd has not disappointed with their ROCE growth. The figures show that over the last four years, ROCE has grown 180% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

To sum it up, Internetworking and Broadband ConsultingLtd is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 38% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Internetworking and Broadband ConsultingLtd, you might be interested to know about the 4 warning signs that our analysis has discovered.

While Internetworking and Broadband ConsultingLtd 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.