Returns Are Gaining Momentum At Okano Valve Mfg.Co.Ltd (TSE:6492)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Okano Valve Mfg.Co.Ltd (TSE:6492) 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 who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Okano Valve Mfg.Co.Ltd is:

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

0.094 = JP¥1.2b ÷ (JP¥14b - JP¥1.7b) (Based on the trailing twelve months to May 2025).

Therefore, Okano Valve Mfg.Co.Ltd has an ROCE of 9.4%. On its own, that's a low figure but it's around the 8.1% average generated by the Machinery industry.

View our latest analysis for Okano Valve Mfg.Co.Ltd

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 Okano Valve Mfg.Co.Ltd has performed in the past in other metrics, you can view this free graph of Okano Valve Mfg.Co.Ltd's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Okano Valve Mfg.Co.Ltd is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 9.4% on its capital. 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. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Our Take On Okano Valve Mfg.Co.Ltd's ROCE

In summary, we're delighted to see that Okano Valve Mfg.Co.Ltd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 217% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Okano Valve Mfg.Co.Ltd can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Okano Valve Mfg.Co.Ltd we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Okano Valve Mfg.Co.Ltd 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.