Toyo Seikan Group Holdings (TSE:5901) Might Have The Makings Of A Multi-Bagger

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. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Toyo Seikan Group Holdings' (TSE:5901) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Toyo Seikan Group Holdings is:

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

0.042 = JP¥37b ÷ (JP¥1.2t - JP¥282b) (Based on the trailing twelve months to December 2024).

Therefore, Toyo Seikan Group Holdings has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Packaging industry average of 5.6%.

View our latest analysis for Toyo Seikan Group Holdings

Above you can see how the current ROCE for Toyo Seikan Group Holdings 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 Toyo Seikan Group Holdings .

The Trend Of ROCE

While there are companies with higher returns on capital out there, we still find the trend at Toyo Seikan Group Holdings promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 73% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

In summary, we're delighted to see that Toyo Seikan Group Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 183% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Toyo Seikan Group Holdings, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.