Shareholders Are Optimistic That Moriya Transportation Engineering and ManufacturingLtd (TSE:6226) Will Multiply In Value

Did you know there are some financial metrics that can provide clues of a potential 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. So, when we ran our eye over Moriya Transportation Engineering and ManufacturingLtd's (TSE:6226) trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Moriya Transportation Engineering and ManufacturingLtd is:

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

0.30 = JP¥3.2b ÷ (JP¥15b - JP¥4.1b) (Based on the trailing twelve months to September 2024).

Thus, Moriya Transportation Engineering and ManufacturingLtd has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 7.9% earned by companies in a similar industry.

Check out 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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Moriya Transportation Engineering and ManufacturingLtd .

What The Trend Of ROCE Can Tell Us

In terms of Moriya Transportation Engineering and ManufacturingLtd's history of ROCE, it's quite impressive. Over the past four years, ROCE has remained relatively flat at around 30% and the business has deployed 129% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

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.

What We Can Learn From Moriya Transportation Engineering and ManufacturingLtd's ROCE

In short, we'd argue Moriya Transportation Engineering and ManufacturingLtd has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 106% return they've received over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you'd like to know about the risks facing Moriya Transportation Engineering and ManufacturingLtd, we've discovered 1 warning sign that you should be aware of.

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.