Slowing Rates Of Return At Miura (TSE:6005) Leave Little Room For Excitement

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. That's why when we briefly looked at Miura's (TSE:6005) ROCE trend, we were pretty happy with what we saw.

What Is 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 Miura:

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

0.13 = JP¥22b ÷ (JP¥227b - JP¥48b) (Based on the trailing twelve months to December 2023).

So, Miura has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 7.9% generated by the Machinery industry.

See our latest analysis for Miura

Above you can see how the current ROCE for Miura compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Miura .

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 41% more capital into its operations. 13% is a pretty standard return, and it provides some comfort knowing that Miura has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

The main thing to remember is that Miura has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 30% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Miura is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you're still interested in Miura it's worth checking out our FREE intrinsic value approximation for 6005 to see if it's trading at an attractive price in other respects.

While Miura isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.