Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Yokota Manufacturing (TSE:6248) and its 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 Yokota Manufacturing is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = JP¥482m ÷ (JP¥3.2b - JP¥203m) (Based on the trailing twelve months to June 2025).
Therefore, Yokota Manufacturing has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 8.6% it's much better.
View our latest analysis for Yokota Manufacturing
Historical performance is a great place to start when researching a stock so above you can see the gauge for Yokota Manufacturing's ROCE against it's prior returns. If you're interested in investigating Yokota Manufacturing's past further, check out this free graph covering Yokota Manufacturing's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
Investors would be pleased with what's happening at Yokota Manufacturing. The data shows that returns on capital have increased substantially over the last five years to 16%. 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%. 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.
In Conclusion...
To sum it up, Yokota Manufacturing has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 123% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.
If you want to continue researching Yokota Manufacturing, you might be interested to know about the 1 warning sign that our analysis has discovered.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.