Kimuratan (TSE:8107) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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 Kimuratan (TSE:8107) and its trend of ROCE, we really liked what we saw.

Our free stock report includes 1 warning sign investors should be aware of before investing in Kimuratan. Read for free now.

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 Kimuratan is:

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

0.012 = JP¥109m ÷ (JP¥10b - JP¥1.3b) (Based on the trailing twelve months to December 2024).

Therefore, Kimuratan has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 3.9%.

View our latest analysis for Kimuratan

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Kimuratan.

What Does the ROCE Trend For Kimuratan Tell Us?

We're delighted to see that Kimuratan is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 1.2% which is a sight for sore eyes. Not only that, but the company is utilizing 433% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 13%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line

To the delight of most shareholders, Kimuratan has now broken into profitability. Since the stock has returned a staggering 167% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Kimuratan can keep these trends up, it could have a bright future ahead.

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

While Kimuratan 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.