The Return Trends At Yokogawa Electric (TSE:6841) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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 when we looked at Yokogawa Electric (TSE:6841) and its trend of ROCE, we really liked 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 Yokogawa Electric is:

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

0.17 = JP¥78b ÷ (JP¥640b - JP¥173b) (Based on the trailing twelve months to December 2023).

Therefore, Yokogawa Electric has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 9.7% it's much better.

See our latest analysis for Yokogawa Electric

In the above chart we have measured Yokogawa Electric's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Yokogawa Electric .

The Trend Of ROCE

We like the trends that we're seeing from Yokogawa Electric. The data shows that returns on capital have increased substantially over the last five years to 17%. The amount of capital employed has increased too, by 45%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Yokogawa Electric's ROCE

All in all, it's terrific to see that Yokogawa Electric is reaping the rewards from prior investments and is growing its capital base. And with a respectable 55% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.