KurimotoLtd (TSE:5602) Might Have The Makings Of A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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, KurimotoLtd (TSE:5602) looks quite promising in regards to its trends of return on capital.

We've discovered 1 warning sign about KurimotoLtd. View them for free.

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. To calculate this metric for KurimotoLtd, this is the formula:

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

0.071 = JP¥6.5b ÷ (JP¥158b - JP¥65b) (Based on the trailing twelve months to December 2024).

Therefore, KurimotoLtd has an ROCE of 7.1%. In absolute terms, that's a low return but it's around the Metals and Mining industry average of 6.5%.

View our latest analysis for KurimotoLtd

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

What Does the ROCE Trend For KurimotoLtd Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 29% more capital is being employed now too. 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.

Another thing to note, KurimotoLtd has a high ratio of current liabilities to total assets of 41%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

To sum it up, KurimotoLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 273% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if KurimotoLtd can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for KurimotoLtd that we think you should be aware of.

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.