Toyo Tanso (TSE:5310) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Toyo Tanso (TSE:5310) 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 Toyo Tanso:

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

0.11 = JP¥10b ÷ (JP¥104b - JP¥13b) (Based on the trailing twelve months to June 2024).

So, Toyo Tanso has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.4% generated by the Electrical industry.

Check out our latest analysis for Toyo Tanso

In the above chart we have measured Toyo Tanso's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Toyo Tanso .

So How Is Toyo Tanso's ROCE Trending?

We like the trends that we're seeing from Toyo Tanso. The data shows that returns on capital have increased substantially over the last five years to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 39%. 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.

What We Can Learn From Toyo Tanso's ROCE

To sum it up, Toyo Tanso has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 131% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

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.