Chugai Mining (TSE:1491) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Chugai Mining's (TSE:1491) returns on capital, so let's have a look.

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Understanding 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. Analysts use this formula to calculate it for Chugai Mining:

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

0.15 = JP¥1.4b ÷ (JP¥17b - JP¥6.9b) (Based on the trailing twelve months to March 2025).

Thus, Chugai Mining has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 6.4% it's much better.

View our latest analysis for Chugai Mining

Historical performance is a great place to start when researching a stock so above you can see the gauge for Chugai Mining's ROCE against it's prior returns. If you're interested in investigating Chugai Mining's past further, check out this free graph covering Chugai Mining's past earnings, revenue and cash flow.

So How Is Chugai Mining's ROCE Trending?

We're delighted to see that Chugai Mining is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 15% on its capital. And unsurprisingly, like most companies trying to break into the black, Chugai Mining is utilizing 42% more capital than it was five years ago. 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.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 42% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

Our Take On Chugai Mining's ROCE

To the delight of most shareholders, Chugai Mining has now broken into profitability. Since the stock has returned a staggering 191% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Chugai Mining, we've spotted 2 warning signs, and 1 of them is concerning.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.