Capital Allocation Trends At Marumae (TSE:6264) Aren't Ideal

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Marumae (TSE:6264) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Marumae, this is the formula:

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

0.074 = JP¥1.5b ÷ (JP¥25b - JP¥4.8b) (Based on the trailing twelve months to May 2025).

Thus, Marumae has an ROCE of 7.4%. In absolute terms, that's a low return but it's around the Machinery industry average of 8.5%.

See our latest analysis for Marumae

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

What Does the ROCE Trend For Marumae Tell Us?

On the surface, the trend of ROCE at Marumae doesn't inspire confidence. Around five years ago the returns on capital were 10%, but since then they've fallen to 7.4%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Marumae's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Marumae. And the stock has done incredibly well with a 103% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Marumae does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those don't sit too well with us...

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.