Toho (TSE:9602) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Toho's (TSE:9602) ROCE trend, we were pretty happy with what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Toho, this is the formula:

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

0.13 = JP¥66b ÷ (JP¥612b - JP¥93b) (Based on the trailing twelve months to May 2024).

So, Toho has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Entertainment industry.

Check out our latest analysis for Toho

In the above chart we have measured Toho'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 Toho .

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has employed 24% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

In the end, Toho has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 36% return to shareholders who held over that period. So to determine if Toho is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you're still interested in Toho it's worth checking out our FREE intrinsic value approximation for 9602 to see if it's trading at an attractive price in other respects.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.