Return Trends At MaruwaLtd (TSE:5344) Aren't Appealing

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at MaruwaLtd's (TSE:5344) ROCE trend, we were pretty happy with 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. The formula for this calculation on MaruwaLtd is:

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

0.18 = JP¥20b ÷ (JP¥123b - JP¥13b) (Based on the trailing twelve months to March 2024).

So, MaruwaLtd has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 8.9% it's much better.

View our latest analysis for MaruwaLtd

Above you can see how the current ROCE for MaruwaLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering MaruwaLtd for free.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 97% more capital in the last five years, and the returns on that capital have remained stable at 18%. 18% is a pretty standard return, and it provides some comfort knowing that MaruwaLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From MaruwaLtd's ROCE

The main thing to remember is that MaruwaLtd has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 531% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to continue researching MaruwaLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

While MaruwaLtd 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.

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