Shareholders Would Enjoy A Repeat Of Core Concept Technologies' (TSE:4371) Recent Growth In Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Core Concept Technologies (TSE:4371) looks great, so lets see what the trend can tell us.

What Is 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. To calculate this metric for Core Concept Technologies, this is the formula:

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

0.47 = JP¥2.0b ÷ (JP¥7.7b - JP¥3.4b) (Based on the trailing twelve months to June 2024).

Therefore, Core Concept Technologies has an ROCE of 47%. In absolute terms that's a great return and it's even better than the IT industry average of 16%.

View our latest analysis for Core Concept Technologies

Above you can see how the current ROCE for Core Concept Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Core Concept Technologies .

What Does the ROCE Trend For Core Concept Technologies Tell Us?

The trends we've noticed at Core Concept Technologies are quite reassuring. Over the last two years, returns on capital employed have risen substantially to 47%. The amount of capital employed has increased too, by 61%. 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.

On a side note, Core Concept Technologies' current liabilities are still rather high at 45% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Core Concept Technologies' ROCE

In summary, it's great to see that Core Concept Technologies can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last three years the stock has only returned 11% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Like most companies, Core Concept Technologies does come with some risks, and we've found 1 warning sign that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.