There's Been No Shortage Of Growth Recently For Koike Sanso KogyoLtd's (TSE:6137) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Koike Sanso KogyoLtd's (TSE:6137) returns on capital, so let's have a look.

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. The formula for this calculation on Koike Sanso KogyoLtd is:

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

0.094 = JP¥4.3b ÷ (JP¥70b - JP¥24b) (Based on the trailing twelve months to December 2023).

Therefore, Koike Sanso KogyoLtd has an ROCE of 9.4%. On its own, that's a low figure but it's around the 7.9% average generated by the Machinery industry.

Check out our latest analysis for Koike Sanso KogyoLtd

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

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 9.4%. 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 28%. So we're very much inspired by what we're seeing at Koike Sanso KogyoLtd thanks to its ability to profitably reinvest capital.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Koike Sanso KogyoLtd has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Koike Sanso KogyoLtd does have some risks though, and we've spotted 1 warning sign for Koike Sanso KogyoLtd 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.