Musashi Seimitsu Industry (TSE:7220) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Musashi Seimitsu Industry (TSE:7220) looks quite promising in regards to its trends of return on capital.

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Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Musashi Seimitsu Industry:

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

0.10 = JP¥19b ÷ (JP¥287b - JP¥100b) (Based on the trailing twelve months to June 2025).

So, Musashi Seimitsu Industry has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 7.6% it's much better.

View our latest analysis for Musashi Seimitsu Industry

Above you can see how the current ROCE for Musashi Seimitsu Industry compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Musashi Seimitsu Industry .

What Does the ROCE Trend For Musashi Seimitsu Industry Tell Us?

Musashi Seimitsu Industry has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 10% which is a sight for sore eyes. In addition to that, Musashi Seimitsu Industry is employing 59% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Musashi Seimitsu Industry's ROCE

Long story short, we're delighted to see that Musashi Seimitsu Industry's reinvestment activities have paid off and the company is now profitable. And a remarkable 233% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Musashi Seimitsu Industry does come with some risks, and we've found 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.