If you are looking to invest in companies who are able to efficiently turn the money they raise into profits, one important thing to look at is Return on Equity (ROE).
What is ROE?
ROE provides insight into how well company management is using financing from equity to grow its business.
ROE is the measure of a company’s net income divided by the value of its total shareholders’ equity, expressed as a percentage (e.g., 20%).
The number represents the total return on equity capital and shows the company’s ability to turn investments into profits.
To put it in simpler terms, it measures the profits made for each dollar raised by selling shares to investors.
By comparing a company’s ROE to the industry’s average, you can get an insight into the company’s competitive advantage.
A sustainable and increasing ROE over time can mean a company is good at generating shareholder value because it knows how to reinvest its money wisely.
In contrast, a declining ROE can mean that management is making poor decisions on reinvesting capital in unproductive assets.
We have picked out 9 Japanese Companies with High ROE.
|Name & Ticker Code||Gross Profit ( JPY)||ROE (%)|
|Kakaku.com (2371)||60,978 M||43.97|
|Nihon M&A Centre Inc. (2127)||19,452 M||32.5|
|MonotaRO Co., Ltd. (3064)||37,096 M||33.0|
|ValueCommerce Co., Ltd. (2491)||8,824 M||32.4|
|JAC Recruitment (2124)||21,845 M||29.4|
|Benefit One Inc. (2412)||14,639 M||31.0|
|Comture Corp. (3844)||4,708.8 M||26.0|
|TechnoPro Holdings Inc. (6028)||38,255 M||23.3|
|ELECOM (6750)||38,926 M||17.8|
Of course, there are many other companies in Japan with respectable ROE rates but the 9 below stand out among the competition.
Established in December 1997, Kakaku.com is Japan’s top site for price comparison. Shoppers all over Japan use the site before buying items whether they are shopping online or offline. The word kakaku means “price” in Japanese.
The site offers price comparison listing as a paid service. Users can easily select the items they want to buy and find the cheapest prices. The site also has an app which provides bar code search to help shoppers find their desired products.
The company also owns a number of large subsidiaries which those familiar with Japan may already know, including top restaurant rating and reservation site Tabelog which boast over 100 million monthly active users, Japanese movie information site eiga.com as well as travel-focused price comparison site 4travel.jp.
The company has been seeing consistent growth, increasing its operating income from JPY ¥21.1 billion (approx. USD $191,652,664) in 2017 to JPY ¥27.2 billion (approx. USD $247,059,358) in 2020.
Founded in April 1991, Nihon M&A Centre Inc. provides merger and acquisition brokerage services. The M&A brokerage mainly deals with small and medium enterprises (SMEs) throughout Japan using its nationwide information network.
The company is also engaged in corporate assessment, calculating the reference price of the value of companies. The company charges service fees at multiple stages of the M&A process, and works with around 100 regional banks and more than 890 accounting firms in Japan to source sellers and buyers.
It also claims to have the largest in-house M&A database. Nihon M&A Center reinvests a sizeable amount of its earnings internally to fuel growth. In May 2020 the company announced its inclusion in the MSCI World Index.
In addition to overseas expansion, Nihon M&A Centre is building up its online platform, Batonz.jp, a site which offers succession-matching services for SMEs in Japan.
The company’s sales increased by 12.5% between FY 2018 to FY 2019, from JPY 28.46 billion (approx. USD $258,504,019) to JPY 32 billion (approx. USD $290,658,068).
- Nihon M&A Center Investor Relations page
- Nihon M&A Center on Investing.com
- Nihon M&A Center on Nikkei Asia
MonotaRO sells maintenance, repair, and operations products and services through the internet and via physical catalogues, targeting small and mid-sized manufacturing companies.
The company sells various product categories such as Personal Protective Equipment, fasteners, and lab supplies, and has more than 1 million customers in Japan.
The company was established in October 2000, and provides products to factories all over Japan and beyond.
The company has been steadily attracting more customers and therefore increasing operating profits from JPY ¥7.12 billion (approx. USD $64,671,420) in 2015 to JPY ¥15.84 billion (approx. USD $143,875,744) in 2019.
Formally known as Transpacific, ValueCommerce Co.,Ltd. is a company founded in 1996 that operates in online advertising and customer relationship management (CRM).
The company deals in affiliate service provider (ASP) services, consulting services and other option services through its self-developed affiliate marketing information system called the ValueCommerce Program.
In addition, the company also provides search engine optimization (SEO) and search engine marketing (SEM), and other affiliate advertisement services as an agency for Yahoo! shopping and other websites.
The company’s CRM business has a large amount of data on Japanese consumer behaviour.
Along with a consistent increase in revenue from sales, ValueCommerce’s ROE increased from 17.6% in 2015 to 32.4% in 2019.
JAC Recruitment Co., Ltd. is a High Return on Equity recruiting agency founded in March, 1988.
The Company focuses on international business areas that include job placements for Japanese workers from foreign companies and overseas subsidiaries of Japanese companies.
The company is also strong in the domestic market, operating the popular job board and tenshoku (job change) support website CareerCross.
JAC Recruitment’s ROE decreased slightly from 30.4% in 2018 to 29.4% in 2019 but this can still be considered high for this kind of business.
- JAC Recruitment Investor Relations page
- JAC Recruitment on Investing.com
- JAC Recruitment on Nikkei Asia
Benefit One was founded in March, 1996 and is headquartered in Tokyo, Japan. It provides membership programs with a focus on benefits for staff in Japanese companies.
It offers incentive, customer relationship management, personal, business travel management, healthcare, and cost reduction services for members.
The company operates the Benefit Station program to staff of client companies, providing workers with a system to earn points which can be exchanged for a wide range of products, from household goods to holidays.
The company is also focussing on health support services for preventing physical and mental illnesses (much needed in Japan’s culture of overwork) such as health check-ups, health guidance, stress checks etc. and collects fees from health insurance societies and client companies.
Benefit One’s Return on Equity has steadily risen from 17.9% in 2019 to 31% in 2020.
Benefit One also features in our article on 5 Hidden Gems in the Japanese Stock Market.
Comture was founded in 1985. This company primarily provides information processing services, including the building, maintenance and operation of computer systems.
The company works with big foreign names like IBM Japan, Ltd. and Microsoft Corporation to provide software solutions. This segment also provides support services for its customers’ business process reform through enterprise resource planning (ERP) packaged software SAP R/3.
While Comture’s ROE has declined from its highest point of 31.9% in 2018, it’s current level of 19.5% can be considered high in the face of the COVID-19 downturn.
TechnoPro Holdings, Inc. was founded on July 25, 2006 and is headquartered in Tokyo. It operates a group of companies that manages technician dispatch and contracting businesses.
The company has the following business divisions: Research and Development (R&D) Outsourcing, Construction Management Outsourcing.
The R&D Outsourcing division handles engineer dispatching and contracting services in technical fields such as network, business application, system maintenance, and biochemistry.
The Construction Management Outsourcing division deploys engineers for construction, civil engineering, and plant works.
TechnoPro’s Return on Equity was 23.3% in June 2020 but it’s share price has increased significantly since then (see above graph).
- TechnoPro Holdings Investor Relations page
- TechnoPro Holdings on Investing.com
- TechnoPro Holdings on Nikkei Asia
Established in 1986, Elecom Co. ltd. has been leading the Smartphone, Tablet PC and Audio-Visual Accessory markets in Japan for the last two decades.
ELECOM also has a worldwide network of business partners which distribute ELECOM products around the globe. ELECOM designs products and provides lifestyle innovation for everyday living with an emphasis on technology.
It started as a computer furniture company before transforming into a pioneering business producing PC peripherals such as computer mice, mobile chargers, and gadget backpacks.
The business has also widened into many industries and to date more than 20,000 ELECOM products have been released on the market. However, PC-related products, smartphone/tablet PC accessories and other peripherals remain the bedrock of ELECOM’s success.
ELECOM has recently entered into new fields that connect people together through healthcare, IoT, and networking solutions such as cloud services.
Elecom’s Return on Equity has fallen from initial highs of 27.4% in 2012 to 17.8% in 2020 yet its net income has increased dramatically over that period.