Kikukawa Enterprise (TSE:6346) Is Doing The Right Things To Multiply Its Share Price

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Kikukawa Enterprise (TSE:6346) looks quite promising in regards to its trends of return on capital.

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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 Kikukawa Enterprise, this is the formula:

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

0.097 = JP¥1.2b ÷ (JP¥15b - JP¥1.8b) (Based on the trailing twelve months to December 2024).

Thus, Kikukawa Enterprise has an ROCE of 9.7%. On its own that's a low return, but compared to the average of 7.8% generated by the Machinery industry, it's much better.

See our latest analysis for Kikukawa Enterprise

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

What Can We Tell From Kikukawa Enterprise's ROCE Trend?

Kikukawa Enterprise's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 35% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To bring it all together, Kikukawa Enterprise has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 85% return over the last five years. In light of that, we think it's worth looking further into this stock because if Kikukawa Enterprise can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Kikukawa Enterprise you'll probably want to know about.

While Kikukawa Enterprise isn't earning the highest return, check out this free list of companies that are 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.