Tokyo Steel Manufacturing (TSE:5423) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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 on that note, Tokyo Steel Manufacturing (TSE:5423) looks quite promising in regards to its trends of return on capital.

What Is 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. The formula for this calculation on Tokyo Steel Manufacturing is:

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

0.16 = JP¥35b ÷ (JP¥310b - JP¥85b) (Based on the trailing twelve months to June 2024).

Thus, Tokyo Steel Manufacturing has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Metals and Mining industry.

Check out our latest analysis for Tokyo Steel Manufacturing

Above you can see how the current ROCE for Tokyo Steel Manufacturing 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 Tokyo Steel Manufacturing .

What Can We Tell From Tokyo Steel Manufacturing's ROCE Trend?

Investors would be pleased with what's happening at Tokyo Steel Manufacturing. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 62%. So we're very much inspired by what we're seeing at Tokyo Steel Manufacturing thanks to its ability to profitably reinvest capital.

The Bottom Line On Tokyo Steel Manufacturing's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Tokyo Steel Manufacturing has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Tokyo Steel Manufacturing does have some risks though, and we've spotted 1 warning sign for Tokyo Steel Manufacturing that you might be interested in.

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.