MBKLtd (TSE:3121) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, MBKLtd (TSE:3121) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on MBKLtd is:

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

0.01 = JP¥137m ÷ (JP¥14b - JP¥518m) (Based on the trailing twelve months to October 2023).

Therefore, MBKLtd has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 9.2%.

Check out our latest analysis for MBKLtd

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

So How Is MBKLtd's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 1.0%. Basically the business is earning more per dollar of capital invested and in addition to that, 31% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On MBKLtd's ROCE

To sum it up, MBKLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

MBKLtd does have some risks, we noticed 3 warning signs (and 2 which are a bit unpleasant) we think you should know about.

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.