Daiwa CycleLtd (TSE:5888) Is Achieving High Returns On Its Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in Daiwa CycleLtd's (TSE:5888) returns on capital, so let's have a look.

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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 Daiwa CycleLtd, this is the formula:

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

0.24 = JP¥1.5b ÷ (JP¥9.1b - JP¥3.1b) (Based on the trailing twelve months to July 2025).

Therefore, Daiwa CycleLtd has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 10%.

View our latest analysis for Daiwa CycleLtd

Above you can see how the current ROCE for Daiwa CycleLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Daiwa CycleLtd .

So How Is Daiwa CycleLtd's ROCE Trending?

The trends we've noticed at Daiwa CycleLtd are quite reassuring. The data shows that returns on capital have increased substantially over the last three years to 24%. The amount of capital employed has increased too, by 96%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Daiwa CycleLtd's ROCE

To sum it up, Daiwa CycleLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 2.9% to its stockholders over the last year, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing to note, we've identified 1 warning sign with Daiwa CycleLtd and understanding this should be part of your investment process.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.