Investors Met With Slowing Returns on Capital At Tosoh (TSE:4042)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at Tosoh (TSE:4042) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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What Is 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. Analysts use this formula to calculate it for Tosoh:

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

0.098 = JP¥96b ÷ (JP¥1.3t - JP¥314b) (Based on the trailing twelve months to September 2025).

Therefore, Tosoh has an ROCE of 9.8%. In absolute terms, that's a low return, but it's much better than the Chemicals industry average of 7.1%.

View our latest analysis for Tosoh

Above you can see how the current ROCE for Tosoh 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 Tosoh .

How Are Returns Trending?

The returns on capital haven't changed much for Tosoh in recent years. The company has consistently earned 9.8% for the last five years, and the capital employed within the business has risen 50% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Tosoh's ROCE

In conclusion, Tosoh has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 82% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you're still interested in Tosoh it's worth checking out our FREE intrinsic value approximation for 4042 to see if it's trading at an attractive price in other respects.

While Tosoh isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.