Moriya Transportation Engineering and ManufacturingLtd (TSE:6226) Is Aiming To Keep Up Its Impressive Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. That's why when we briefly looked at Moriya Transportation Engineering and ManufacturingLtd's (TSE:6226) ROCE trend, we were very happy with what we saw.

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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. To calculate this metric for Moriya Transportation Engineering and ManufacturingLtd, this is the formula:

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

0.32 = JP¥3.6b ÷ (JP¥15b - JP¥4.1b) (Based on the trailing twelve months to December 2024).

So, Moriya Transportation Engineering and ManufacturingLtd has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Machinery industry average of 7.8%.

View our latest analysis for Moriya Transportation Engineering and ManufacturingLtd

Above you can see how the current ROCE for Moriya Transportation Engineering and ManufacturingLtd 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 Moriya Transportation Engineering and ManufacturingLtd .

How Are Returns Trending?

We'd be pretty happy with returns on capital like Moriya Transportation Engineering and ManufacturingLtd. The company has consistently earned 32% for the last four years, and the capital employed within the business has risen 122% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Moriya Transportation Engineering and ManufacturingLtd can keep this up, we'd be very optimistic about its future.

On a side note, Moriya Transportation Engineering and ManufacturingLtd has done well to reduce current liabilities to 27% of total assets over the last four years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line On Moriya Transportation Engineering and ManufacturingLtd's ROCE

In summary, we're delighted to see that Moriya Transportation Engineering and ManufacturingLtd has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 217% return to those who've held over the last three years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 6226 that compares the share price and estimated value.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.