Kobe Steel (TSE:5406) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Kobe Steel (TSE:5406) and its trend of ROCE, we really liked what we saw.

Our free stock report includes 3 warning signs investors should be aware of before investing in Kobe Steel. Read for free now.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Kobe Steel is:

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

0.087 = JP¥172b ÷ (JP¥2.9t - JP¥890b) (Based on the trailing twelve months to December 2024).

Therefore, Kobe Steel has an ROCE of 8.7%. On its own that's a low return, but compared to the average of 6.9% generated by the Metals and Mining industry, it's much better.

See our latest analysis for Kobe Steel

Above you can see how the current ROCE for Kobe Steel compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Kobe Steel .

What Does the ROCE Trend For Kobe Steel Tell Us?

Kobe Steel's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 380% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Kobe Steel's ROCE

To sum it up, Kobe Steel is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 509% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Kobe Steel does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are potentially serious...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.