What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Kasai Kogyo (TSE:7256) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Kasai Kogyo is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.016 = JP¥1.5b ÷ (JP¥136b - JP¥45b) (Based on the trailing twelve months to September 2025).
Thus, Kasai Kogyo has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 7.7%.
See our latest analysis for Kasai Kogyo
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Kasai Kogyo's past further, check out this free graph covering Kasai Kogyo's past earnings, revenue and cash flow.
How Are Returns Trending?
Shareholders will be relieved that Kasai Kogyo has broken into profitability. The company now earns 1.6% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. 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 Kasai Kogyo's ROCE
To sum it up, Kasai Kogyo is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has dived 72% over the last five years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.
On a final note, we found 2 warning signs for Kasai Kogyo (1 is potentially serious) you should be aware of.
While Kasai Kogyo isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Valuation is complex, but we're here to simplify it.
Discover if Kasai Kogyo might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.