Okano Valve Mfg.Co.Ltd's (TSE:6492) Returns On Capital Are Heading Higher

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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 looked at Okano Valve Mfg.Co.Ltd (TSE:6492) and its trend of ROCE, we really liked what we saw.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Okano Valve Mfg.Co.Ltd, this is the formula:

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

0.069 = JP¥879m ÷ (JP¥15b - JP¥1.9b) (Based on the trailing twelve months to September 2025).

So, Okano Valve Mfg.Co.Ltd has an ROCE of 6.9%. On its own, that's a low figure but it's around the 8.6% average generated by the Machinery industry.

Check out our latest analysis for Okano Valve Mfg.Co.Ltd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Okano Valve Mfg.Co.Ltd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Okano Valve Mfg.Co.Ltd.

So How Is Okano Valve Mfg.Co.Ltd's ROCE Trending?

Shareholders will be relieved that Okano Valve Mfg.Co.Ltd has broken into profitability. The company now earns 6.9% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On Okano Valve Mfg.Co.Ltd's ROCE

As discussed above, Okano Valve Mfg.Co.Ltd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 224% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Okano Valve Mfg.Co.Ltd (of which 1 is a bit unpleasant!) that you should know about.

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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.