What Do The Returns At KVK (TYO:6484) Mean Going Forward?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at KVK (TYO:6484) and its trend of ROCE, we really liked what we saw.

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 KVK:

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

0.14 = JP¥3.0b ÷ (JP¥29b - JP¥7.0b) (Based on the trailing twelve months to December 2020).

Thus, KVK has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Building industry average of 7.9% it's much better.

Check out our latest analysis for KVK

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

What Can We Tell From KVK's ROCE Trend?

Investors would be pleased with what's happening at KVK. Over the last five years, returns on capital employed have risen substantially to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 33% more capital is being employed now too. 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.

The Bottom Line On KVK's ROCE

All in all, it's terrific to see that KVK is reaping the rewards from prior investments and is growing its capital base. And a remarkable 101% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if KVK can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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