GDEP ADVANCEInc (TSE:5885) Might Become A Compounding Machine

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over GDEP ADVANCEInc's (TSE:5885) trend of ROCE, we really liked what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for GDEP ADVANCEInc:

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

0.26 = JP¥911m ÷ (JP¥4.8b - JP¥1.3b) (Based on the trailing twelve months to February 2025).

So, GDEP ADVANCEInc has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Electronic industry average of 9.2%.

Check out our latest analysis for GDEP ADVANCEInc

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 GDEP ADVANCEInc's past further, check out this free graph covering GDEP ADVANCEInc's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

GDEP ADVANCEInc deserves to be commended in regards to it's returns. The company has employed 127% more capital in the last three years, and the returns on that capital have remained stable at 26%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

What We Can Learn From GDEP ADVANCEInc's ROCE

In summary, we're delighted to see that GDEP ADVANCEInc has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has followed suit returning a meaningful 37% to shareholders over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing GDEP ADVANCEInc, we've discovered 1 warning sign that you should be aware of.

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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.