Returns On Capital Are Showing Encouraging Signs At SOLXYZ (TSE:4284)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at SOLXYZ (TSE:4284) so let's look a bit deeper.

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

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. The formula for this calculation on SOLXYZ is:

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

0.17 = JP¥1.4b ÷ (JP¥12b - JP¥3.7b) (Based on the trailing twelve months to September 2025).

Thus, SOLXYZ has an ROCE of 17%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Software industry average of 18%.

See our latest analysis for SOLXYZ

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

What Can We Tell From SOLXYZ's ROCE Trend?

SOLXYZ has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 63% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From SOLXYZ's ROCE

As discussed above, SOLXYZ appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has only returned 4.9% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

SOLXYZ does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think 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.

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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.