Returns On Capital Are Showing Encouraging Signs At Fukuvi Chemical IndustryLtd (TSE:7871)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Fukuvi Chemical IndustryLtd (TSE:7871) and its trend of ROCE, we really 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. To calculate this metric for Fukuvi Chemical IndustryLtd, this is the formula:

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

0.042 = JP¥1.6b ÷ (JP¥53b - JP¥14b) (Based on the trailing twelve months to June 2025).

So, Fukuvi Chemical IndustryLtd has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Building industry average of 7.1%.

See our latest analysis for Fukuvi Chemical IndustryLtd

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

What Does the ROCE Trend For Fukuvi Chemical IndustryLtd Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 4.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 25% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Fukuvi Chemical IndustryLtd has. And a remarkable 135% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Fukuvi Chemical IndustryLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.