Slowing Rates Of Return At Koei Tecmo Holdings (TSE:3635) Leave Little Room For Excitement

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Koei Tecmo Holdings' (TSE:3635) trend of ROCE, we liked what we saw.

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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. Analysts use this formula to calculate it for Koei Tecmo Holdings:

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

0.16 = JP¥30b ÷ (JP¥243b - JP¥52b) (Based on the trailing twelve months to June 2025).

So, Koei Tecmo Holdings has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 10% 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, you can check out the forecasts from the analysts covering Koei Tecmo Holdings for free.

So How Is Koei Tecmo Holdings' ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 48% more capital in the last five years, and the returns on that capital have remained stable at 16%. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Koei Tecmo Holdings' ROCE

The main thing to remember is that Koei Tecmo Holdings has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 40% over the last five years, we'd suspect the market is beginning to recognize these trends. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

Koei Tecmo Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 3635 on our platform quite valuable.

While Koei Tecmo Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.