Fruta Fruta (TSE:2586) Is Experiencing Growth In Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Fruta Fruta (TSE:2586) so let's look a bit deeper.

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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 Fruta Fruta is:

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

0.084 = JP¥417m ÷ (JP¥5.5b - JP¥515m) (Based on the trailing twelve months to September 2025).

Thus, Fruta Fruta has an ROCE of 8.4%. On its own, that's a low figure but it's around the 9.4% average generated by the Consumer Retailing industry.

View our latest analysis for Fruta Fruta

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fruta Fruta's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Fruta Fruta.

How Are Returns Trending?

We're delighted to see that Fruta Fruta is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 8.4% on its capital. Not only that, but the company is utilizing 1,020% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 9.4%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Fruta Fruta has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Fruta Fruta's ROCE

To the delight of most shareholders, Fruta Fruta has now broken into profitability. And since the stock has fallen 46% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Fruta Fruta, we've spotted 4 warning signs, and 3 of them are a bit concerning.

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.