What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in AMIYA's (TSE:4258) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
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 AMIYA is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.27 = JP¥752m ÷ (JP¥6.1b - JP¥3.3b) (Based on the trailing twelve months to June 2025).
Thus, AMIYA has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 18% earned by companies in a similar industry.
See our latest analysis for AMIYA
Historical performance is a great place to start when researching a stock so above you can see the gauge for AMIYA's ROCE against it's prior returns. If you'd like to look at how AMIYA has performed in the past in other metrics, you can view this free graph of AMIYA's past earnings, revenue and cash flow.
What Does the ROCE Trend For AMIYA Tell Us?
We like the trends that we're seeing from AMIYA. The numbers show that in the last one year, the returns generated on capital employed have grown considerably to 27%. The amount of capital employed has increased too, by 24%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
On a separate but related note, it's important to know that AMIYA has a current liabilities to total assets ratio of 54%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
In Conclusion...
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what AMIYA has. And a remarkable 484% total return over the last three years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for AMIYA (of which 1 is significant!) that you should know about.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
Valuation is complex, but we're here to simplify it.
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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.