The Returns On Capital At Kraftia (TSE:1959) Don't Inspire Confidence

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. In light of that, when we looked at Kraftia (TSE:1959) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Kraftia is:

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

0.12 = JP¥42b ÷ (JP¥463b - JP¥118b) (Based on the trailing twelve months to June 2025).

Thus, Kraftia has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 9.9% it's much better.

See our latest analysis for Kraftia

Above you can see how the current ROCE for Kraftia 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 Kraftia .

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Kraftia doesn't inspire confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 12%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Kraftia's ROCE

To conclude, we've found that Kraftia is reinvesting in the business, but returns have been falling. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 208% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Kraftia does have some risks though, and we've spotted 1 warning sign for Kraftia that you might be interested in.

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. 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.