Daiwabo Holdings (TSE:3107) Is Reinvesting To Multiply In Value

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Daiwabo Holdings (TSE:3107) looks attractive right now, so lets see what the trend of returns can tell us.

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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 Daiwabo Holdings:

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

0.23 = JP¥41b ÷ (JP¥420b - JP¥247b) (Based on the trailing twelve months to June 2025).

So, Daiwabo Holdings has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 9.1% earned by companies in a similar industry.

Check out our latest analysis for Daiwabo Holdings

Above you can see how the current ROCE for Daiwabo Holdings 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 Daiwabo Holdings .

How Are Returns Trending?

It's hard not to be impressed by Daiwabo Holdings' returns on capital. The company has employed 25% more capital in the last five years, and the returns on that capital have remained stable at 23%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Daiwabo Holdings can keep this up, we'd be very optimistic about its future.

Another thing to note, Daiwabo Holdings has a high ratio of current liabilities to total assets of 59%. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Daiwabo Holdings' ROCE

Daiwabo Holdings has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has done incredibly well with a 206% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a final note, we found 2 warning signs for Daiwabo Holdings (1 shouldn't be ignored) you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.