Returns On Capital At Daikin IndustriesLtd (TSE:6367) Have Hit The Brakes

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Daikin IndustriesLtd's (TSE:6367) trend of ROCE, we liked what we saw.

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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. Analysts use this formula to calculate it for Daikin IndustriesLtd:

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

0.11 = JP¥408b ÷ (JP¥5.1t - JP¥1.6t) (Based on the trailing twelve months to June 2025).

Therefore, Daikin IndustriesLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.7% generated by the Building industry.

Check out our latest analysis for Daikin IndustriesLtd

In the above chart we have measured Daikin IndustriesLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Daikin IndustriesLtd .

What Can We Tell From Daikin IndustriesLtd's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 61% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Daikin IndustriesLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Daikin IndustriesLtd's ROCE

To sum it up, Daikin IndustriesLtd has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 0.9% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Daikin IndustriesLtd is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Like most companies, Daikin IndustriesLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

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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.