Japan Internet Initiative (TSE:3774) is looking to continue to grow its returns on equity

If you’re looking for a multi-bag bag, there are a few things to keep in mind. In a perfect world, we would like to see a company investing more capital into its business, and ideally the returns earned on that capital are also increasing. Simply put, these types of businesses are complex machines, meaning they are constantly reinvesting their profits at ever-higher rates of return. With that in mind, we’ve noticed some promising trends in Internet initiative in Japan (TSE:3774) so ​​let’s look a little deeper.

What is return on capital employed (ROCE)?

For those not sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Internet Initiative Japan:

Return on capital employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)

0.17 = JP¥29b ÷ (JP¥274b – JP¥98b) (Based on the trailing twelve months to March 2024).

Therefore, Internet Initiative Japan has a ROCE of 17%. In absolute terms, this is a fairly normal return and is somewhat close to the Telecom industry average of 19%.

Check out our latest analysis on Internet Initiative Japan

roce
TSE:3774 Return on capital employed June 27, 2024

In the chart above we’ve measured Japan Internet Initiative’s previous ROCE against its past performance, but the future is perhaps more important. If you want to see what analysts predict for the future, you should check out our free analyst report for Internet Initiative Japan.

So how is ROCE Japan’s Internet Initiative trending?

Internet Initiative Japan is showing some positive trends. Over the past five years, returns on capital employed have risen sharply to 17%. Basically the business is earning more per dollar of capital invested and in addition, 53% more capital is now being employed. Increasing returns on an increasing amount of capital is common among multi-bag producers, and that’s why we’re impressed.

What we can learn from Japan’s ROCE Internet Initiative

In summary, it is great to see that the Japan Internet Initiative can accumulate returns by constantly reinvesting capital with increasing rates of return, because these are some of the key ingredients of those that are in high demand. As the stock has returned 372% to shareholders over the past five years, it appears that investors are recognizing these changes. With that said, we still think the promising fundamentals mean the company deserves further due diligence.

Another thing to note, we have identified 1 warning sign with Internet Initiative Japan and understanding it should be part of your investment process.

If you want to look for stable companies with big profits, check this out free list of companies with good balance sheets and impressive returns on capital.

Valuation is complex, but we’re helping to make it simple.

Find out if Internet initiative in Japan is potentially over- or under-estimated by checking our comprehensive analysis, which includes fair value estimates, risks and caveats, dividends, insider transactions and financial health.

View free analysis

Have comments on this article? Worried about content? CONTACT with us directly. Alternatively, email the editorial team at (at) justwallst.com.

This article from 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 into account your financial objectives or situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not include the latest price-sensitive company announcements or quality materials. Simply Wall St has no position in any of the stocks mentioned.

Valuation is complex, but we’re helping to make it simple.

Find out if Internet initiative in Japan is potentially over- or under-estimated by checking our comprehensive analysis, which includes fair value estimates, risks and caveats, dividends, insider transactions and financial health.

View free analysis

Have comments on this article? Worried about content? Contact us directly. Alternatively, email editorial-team@simplywallst.com

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