Akebono Brake Industry (TSE:7238) 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? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Akebono Brake Industry (TSE:7238) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Akebono Brake Industry:

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

0.049 = JP¥4.6b ÷ (JP¥125b - JP¥33b) (Based on the trailing twelve months to September 2025).

Thus, Akebono Brake Industry has an ROCE of 4.9%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 7.7%.

View our latest analysis for Akebono Brake Industry

Historical performance is a great place to start when researching a stock so above you can see the gauge for Akebono Brake Industry's ROCE against it's prior returns. If you'd like to look at how Akebono Brake Industry has performed in the past in other metrics, you can view this free graph of Akebono Brake Industry's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Akebono Brake Industry has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 4.9% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Akebono Brake Industry has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

Our Take On Akebono Brake Industry's ROCE

As discussed above, Akebono Brake Industry appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Astute investors may have an opportunity here because the stock has declined 25% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

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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.