Investors Will Want Takamisawa Cybernetics Company's (TSE:6424) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Takamisawa Cybernetics Company (TSE:6424) looks quite promising in regards to its trends of return on capital.

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

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. Analysts use this formula to calculate it for Takamisawa Cybernetics Company:

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

0.17 = JP¥1.6b ÷ (JP¥16b - JP¥6.1b) (Based on the trailing twelve months to December 2024).

Therefore, Takamisawa Cybernetics Company has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.0% generated by the Electronic industry.

Check out our latest analysis for Takamisawa Cybernetics Company

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'd like to look at how Takamisawa Cybernetics Company has performed in the past in other metrics, you can view this free graph of Takamisawa Cybernetics Company's past earnings, revenue and cash flow .

What The Trend Of ROCE Can Tell Us

Takamisawa Cybernetics Company is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 55% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 39%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Takamisawa Cybernetics Company has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

All in all, it's terrific to see that Takamisawa Cybernetics Company is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 15% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to know some of the risks facing Takamisawa Cybernetics Company we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.