Returns on Capital Paint A Bright Future For AsiaQuest (TSE:4261)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at AsiaQuest's (TSE:4261) look very promising so lets take a look.

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Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for AsiaQuest:

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

0.23 = JP¥462m ÷ (JP¥2.8b - JP¥804m) (Based on the trailing twelve months to June 2025).

So, AsiaQuest has an ROCE of 23%. In absolute terms that's a great return and it's even better than the IT industry average of 15%.

See our latest analysis for AsiaQuest

Historical performance is a great place to start when researching a stock so above you can see the gauge for AsiaQuest's ROCE against it's prior returns. If you're interested in investigating AsiaQuest's past further, check out this free graph covering AsiaQuest's past earnings, revenue and cash flow.

What Does the ROCE Trend For AsiaQuest Tell Us?

Investors would be pleased with what's happening at AsiaQuest. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 23%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 236%. So we're very much inspired by what we're seeing at AsiaQuest thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 29%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that AsiaQuest has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From AsiaQuest's ROCE

In summary, it's great to see that AsiaQuest can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 34% return over the last three years. Therefore, we think it would be worth your time to check if these trends are going to continue.

AsiaQuest does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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.

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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.