Analysis of Current Situation
Cost of Shareholders’ Equity
The Company considers the figure calculated based on the capital asset pricing model (CAPM) the cost of shareholders’ equity. However, since it has been only about two years since the Company’s listing and
due to issues such as the β calculation period being short and insufficient transaction volumes, this figure is not taken as an absolute, and the Company will continue to revise the level of the cost of capital
appropriately based on dialogue with investors.
As a result of calculation, it is estimated that the cost of equity is in the range of 7.5% to 8.5%.
Cost of shareholders’ equity = Risk-free rate of interest※1 + β ※2 x Market risk premium ※3 x Individual stock risk premium ※4
- 1 Risk-free rate of interest: Using the monthly average yield of 10-year government bonds
- 2 β： Sensitivity of the Company’s stock to market risk premium. Using modified estimates
- 3 Market risk premium: Estimated from past returns in the Japanese stock market
- 4 Individual stock risk premium: Estimated from past returns in the Japanese market
Return on Capital
Because the Company has many shared assets making it difficult to classify capital by business segment, and because there is a high degree of inter-relatedness between business segments, it is not useful to manage return on capital by business segment. Therefore, the Company focuses on ROE rather than ROIC as an index of return on capital.
| FY2020/9 | FY2021/9 | FY2022/9 | FY2023/9 | FY2024/9 | |
|---|---|---|---|---|---|
| ROE | 7.4 % | 12.4 % | 16.0 % | 16.0 % | 6.7% |
Board of Directors’ assessment of the Company’s cost of capital, return on capital, and market evaluation
The ROE for the fiscal year ending September 2024 was 6.7%, which was lower than the cost of equity. Additionally, the average PBR from October 1, 2023 to September 30, 2024 was 2.6 fold and the average PER was 17.5 fold. Based on these results, the Board of Directors’ assessment is that the Company’s performance is low compared to other companies in the information and communications industry to which the Company belongs.
Initiatives towards improvement
Initiatives towards improving ROE
The ROE target has been set at 13%, which exceeds the average value of 11.7% over the past five years. In order to achieve this ROE target, the Company will implement initiatives in accordance with the following policies
| Improvement of profit margin on sales | Increase sales ratio of the highly profitable Cloud integration business and Cloud service business, Focus on growth areas (AI and security) |
| Improvement of total asset turnover rate | Increase sales, Control increase of total assets |
| Financial leverage | Maintain an optimal capital structure |
Initiatives to improve market evaluation
We believe that dialogue with shareholders and investors is essential in order to improve the Company’s market evaluation. The Company will continue to achieve our ROE targets and engage in dialogue with shareholders and investors regarding our growth strategy.
