Kyowa Leather Cloth (TSE:3553) Has More To Do To Multiply In Value Going Forward

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Kyowa Leather Cloth (TSE:3553) 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 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. Analysts use this formula to calculate it for Kyowa Leather Cloth:

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

0.034 = JP¥1.3b ÷ (JP¥55b - JP¥16b) (Based on the trailing twelve months to September 2025).

Thus, Kyowa Leather Cloth has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 7.1%.

Check out our latest analysis for Kyowa Leather Cloth

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

What Can We Tell From Kyowa Leather Cloth's ROCE Trend?

There hasn't been much to report for Kyowa Leather Cloth's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Kyowa Leather Cloth to be a multi-bagger going forward.

In Conclusion...

We can conclude that in regards to Kyowa Leather Cloth's returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 97% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we found 3 warning signs for Kyowa Leather Cloth (2 are potentially serious) you should be aware of.

While Kyowa Leather Cloth may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.