Returns On Capital At Kuraray (TSE:3405) Have Stalled

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Kuraray (TSE:3405) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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 Kuraray is:

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

0.071 = JP¥75b ÷ (JP¥1.3t - JP¥205b) (Based on the trailing twelve months to March 2025).

Therefore, Kuraray has an ROCE of 7.1%. Even though it's in line with the industry average of 7.3%, it's still a low return by itself.

View our latest analysis for Kuraray

Above you can see how the current ROCE for Kuraray compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Kuraray .

What Can We Tell From Kuraray's ROCE Trend?

The returns on capital haven't changed much for Kuraray in recent years. The company has consistently earned 7.1% for the last five years, and the capital employed within the business has risen 32% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Kuraray's ROCE

Long story short, while Kuraray has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 93% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing, we've spotted 3 warning signs facing Kuraray that you might find interesting.

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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.