Returns On Capital Are Showing Encouraging Signs At Japan Airport Terminal (TSE:9706)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Speaking of which, we noticed some great changes in Japan Airport Terminal's (TSE:9706) returns on capital, so let's have a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Japan Airport Terminal is:

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

0.094 = JP¥38b ÷ (JP¥474b - JP¥72b) (Based on the trailing twelve months to June 2025).

Thus, Japan Airport Terminal has an ROCE of 9.4%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 4.6%.

Check out our latest analysis for Japan Airport Terminal

Above you can see how the current ROCE for Japan Airport Terminal 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 Japan Airport Terminal for free.

What Can We Tell From Japan Airport Terminal's ROCE Trend?

We're delighted to see that Japan Airport Terminal is reaping rewards from its investments and has now broken into profitability. The company now earns 9.4% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

The Key Takeaway

As discussed above, Japan Airport Terminal appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 9.3% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Japan Airport Terminal does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

While Japan Airport Terminal 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.