According to the Nikkei Asian Review today, major Japanese companies are becoming adept at using their capital more efficiently, with one out of three boasting a return on equity -- a key indicator in this regard -- of more than 10%.
Of 1,714 nonfinancial companies listed on the first section of the Tokyo Stock Exchange, 549, or 32%, had an ROE above 10% for fiscal 2014, according to a Nikkei survey. ROE -- net profit divided by shareholder equity -- averages 13% among big U.S. companies and 9% in Europe.
The weakening of the yen helped many businesses reap record profits last fiscal year. At the same time, more Japanese companies opted for share buybacks and dividend hikes, reducing their capital.
Industrial robot maker Fanuc's ROE came to 16.1%, up 6.4 percentage points from fiscal 2013. The company posted a record net profit last fiscal year thanks to brisk sales of its Robodrill machine tools used for making smartphones. Mitsubishi Electric also logged a record profit as sales of factory automation equipment grew. Its ROE rose 3 points to 13.9%.
Companies can boost ROE by either increasing net profit or reducing shareholder equity through such means as paying dividends and buying back shares.
Casio Computer and Brother Industries carried out share buybacks, raising their ROE by 4.4 points to 13.6% and by 9.9 points to 16.8%, respectively.
A growing number of Japanese companies are setting an ROE target as a show of their commitment to shareholders. Nippon Steel & Sumitomo Metal, JFE Holdings and Mitsubishi Heavy Industries have vowed to raise their ROE to 10% or higher in three years.
Still, ROE is low at some major Japanese companies relative to figures in the U.S. and Europe. Kirin Holdings' ROE dropped 5.5 points to 3%, partly as intensifying competition hurt profitability.