Investors Shouldn't Overlook The Favourable Returns On Capital At Kusurinomadoguchi (TSE:5592)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. That's why when we briefly looked at Kusurinomadoguchi's (TSE:5592) ROCE trend, we were very happy with what we saw.

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Understanding 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 Kusurinomadoguchi, this is the formula:

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

0.24 = JP¥2.2b ÷ (JP¥12b - JP¥2.8b) (Based on the trailing twelve months to June 2025).

So, Kusurinomadoguchi has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Healthcare Services industry average of 18%.

See our latest analysis for Kusurinomadoguchi

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kusurinomadoguchi'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 Kusurinomadoguchi.

What Can We Tell From Kusurinomadoguchi's ROCE Trend?

It's hard not to be impressed by Kusurinomadoguchi's returns on capital. Over the past three years, ROCE has remained relatively flat at around 24% and the business has deployed 186% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

On a side note, Kusurinomadoguchi has done well to reduce current liabilities to 23% of total assets over the last three years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On Kusurinomadoguchi's ROCE

In short, we'd argue Kusurinomadoguchi has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 147% return they've received over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know about the risks facing Kusurinomadoguchi, we've discovered 1 warning sign that you should be aware of.

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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.