Here's What To Make Of Kimura Chemical Plants' (TSE:6378) Decelerating Rates Of Return

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. That's why when we briefly looked at Kimura Chemical Plants' (TSE:6378) ROCE trend, we were pretty happy with what we saw.

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Understanding 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 Kimura Chemical Plants, this is the formula:

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

0.12 = JP¥2.8b ÷ (JP¥34b - JP¥11b) (Based on the trailing twelve months to December 2024).

Thus, Kimura Chemical Plants has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 7.8% it's much better.

View our latest analysis for Kimura Chemical Plants

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Kimura Chemical Plants has performed in the past in other metrics, you can view this free graph of Kimura Chemical Plants' past earnings, revenue and cash flow .

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 40% more capital into its operations. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

To sum it up, Kimura Chemical Plants has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 88% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Kimura Chemical Plants does have some risks though, and we've spotted 2 warning signs for Kimura Chemical Plants that you might be interested in.

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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.