Toho Zinc (TSE:5707) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Toho Zinc (TSE:5707) so let's look a bit deeper.

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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 Toho Zinc, this is the formula:

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

0.02 = JP¥1.5b ÷ (JP¥95b - JP¥20b) (Based on the trailing twelve months to June 2025).

So, Toho Zinc has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 6.3%.

View our latest analysis for Toho Zinc

Above you can see how the current ROCE for Toho Zinc 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 Toho Zinc .

What Does the ROCE Trend For Toho Zinc Tell Us?

Shareholders will be relieved that Toho Zinc has broken into profitability. The company now earns 2.0% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

On a related note, the company's ratio of current liabilities to total assets has decreased to 21%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Toho Zinc's ROCE

As discussed above, Toho Zinc appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Astute investors may have an opportunity here because the stock has declined 61% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Toho Zinc does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

While Toho Zinc 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.