Returns At Koei Tecmo Holdings (TSE:3635) Are On The Way Up

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Koei Tecmo Holdings (TSE:3635) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Koei Tecmo Holdings is:

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

0.12 = JP¥23b ÷ (JP¥238b - JP¥36b) (Based on the trailing twelve months to December 2024).

Therefore, Koei Tecmo Holdings has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.8% generated by the Entertainment industry.

View our latest analysis for Koei Tecmo Holdings

Above you can see how the current ROCE for Koei Tecmo Holdings 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 Koei Tecmo Holdings .

How Are Returns Trending?

Koei Tecmo Holdings is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 57%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Koei Tecmo Holdings' ROCE

To sum it up, Koei Tecmo Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 100% return over the last five years. In light of that, we think it's worth looking further into this stock because if Koei Tecmo Holdings can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 3635 that compares the share price and estimated value.

While Koei Tecmo Holdings 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.