Returns On Capital Are Showing Encouraging Signs At Canon Marketing Japan (TSE:8060)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Canon Marketing Japan (TSE:8060) and its trend of ROCE, we really liked what we saw.

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 Canon Marketing Japan:

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

0.11 = JP¥51b ÷ (JP¥576b - JP¥115b) (Based on the trailing twelve months to June 2024).

So, Canon Marketing Japan has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.4% generated by the Electronic industry.

See our latest analysis for Canon Marketing Japan

Above you can see how the current ROCE for Canon Marketing Japan 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 Canon Marketing Japan .

How Are Returns Trending?

Investors would be pleased with what's happening at Canon Marketing Japan. The data shows that returns on capital have increased substantially over the last five years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 23% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Canon Marketing Japan's ROCE

In summary, it's great to see that Canon Marketing Japan 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. And a remarkable 138% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Canon Marketing Japan can keep these trends up, it could have a bright future ahead.

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

While Canon Marketing Japan 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.