Tokyo Steel Manufacturing (TSE:5423) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Tokyo Steel Manufacturing's (TSE:5423) returns on capital, so let's have a look.

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. To calculate this metric for Tokyo Steel Manufacturing, this is the formula:

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

0.17 = JP¥35b ÷ (JP¥297b - JP¥85b) (Based on the trailing twelve months to December 2023).

Thus, Tokyo Steel Manufacturing has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.0% generated by the Metals and Mining industry.

View our latest analysis for Tokyo Steel Manufacturing

In the above chart we have measured Tokyo Steel Manufacturing's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Tokyo Steel Manufacturing .

How Are Returns Trending?

We like the trends that we're seeing from Tokyo Steel Manufacturing. The data shows that returns on capital have increased substantially over the last five years to 17%. The amount of capital employed has increased too, by 58%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

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 a respectable 97% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

Tokyo Steel Manufacturing does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Tokyo Steel Manufacturing 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.