We Like These Underlying Return On Capital Trends At IbidenLtd (TSE:4062)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, IbidenLtd (TSE:4062) looks quite promising in regards to its trends of return on capital.

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 IbidenLtd, this is the formula:

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

0.073 = JP¥48b ÷ (JP¥906b - JP¥250b) (Based on the trailing twelve months to December 2023).

Therefore, IbidenLtd has an ROCE of 7.3%. Ultimately, that's a low return and it under-performs the Electronic industry average of 9.6%.

View our latest analysis for IbidenLtd

Above you can see how the current ROCE for IbidenLtd 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 IbidenLtd .

What Does the ROCE Trend For IbidenLtd Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.3%. Basically the business is earning more per dollar of capital invested and in addition to that, 116% more capital is being employed now too. So we're very much inspired by what we're seeing at IbidenLtd thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that IbidenLtd 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. Since the stock has returned a staggering 273% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if IbidenLtd can keep these trends up, it could have a bright future ahead.

While IbidenLtd looks impressive, no company is worth an infinite price. The intrinsic value infographic for 4062 helps visualize whether it is currently trading for a fair price.

While IbidenLtd 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.