Eagle IndustryLtd (TSE:6486) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Eagle IndustryLtd (TSE:6486) and its trend of ROCE, we really liked what we saw.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Eagle IndustryLtd is:

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

0.053 = JP¥8.4b ÷ (JP¥208b - JP¥51b) (Based on the trailing twelve months to June 2025).

So, Eagle IndustryLtd has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 7.6%.

Check out our latest analysis for Eagle IndustryLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Eagle IndustryLtd's ROCE against it's prior returns. If you're interested in investigating Eagle IndustryLtd's past further, check out this free graph covering Eagle IndustryLtd's past earnings, revenue and cash flow.

So How Is Eagle IndustryLtd's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.3%. The amount of capital employed has increased too, by 29%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Eagle IndustryLtd's ROCE

All in all, it's terrific to see that Eagle IndustryLtd is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 325% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 1 warning sign with Eagle IndustryLtd and understanding it should be part of your investment process.

While Eagle IndustryLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.