There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 looked at Kaizen Platform (TSE:4170) 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. Analysts use this formula to calculate it for Kaizen Platform:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0031 = JP¥11m ÷ (JP¥4.4b - JP¥852m) (Based on the trailing twelve months to March 2025).
So, Kaizen Platform has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the IT industry average of 16%.
Check out our latest analysis for Kaizen Platform
Historical performance is a great place to start when researching a stock so above you can see the gauge for Kaizen Platform's ROCE against it's prior returns. If you're interested in investigating Kaizen Platform's past further, check out this free graph covering Kaizen Platform's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
Kaizen Platform has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.3% on its capital. Not only that, but the company is utilizing 118% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
What We Can Learn From Kaizen Platform's ROCE
In summary, it's great to see that Kaizen Platform has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 48% in the last three years. With that in mind, we believe the promising trends warrant this stock for further investigation.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Kaizen Platform (of which 1 is significant!) that you should know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
Valuation is complex, but we're here to simplify it.
Discover if Kaizen Platform might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.