The Returns On Capital At AKIBA HoldingsLtd (TSE:6840) Don't Inspire Confidence

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Although, when we looked at AKIBA HoldingsLtd (TSE:6840), it didn't seem to tick all of these boxes.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on AKIBA HoldingsLtd is:

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

0.12 = JP¥798m ÷ (JP¥13b - JP¥6.7b) (Based on the trailing twelve months to June 2025).

So, AKIBA HoldingsLtd has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.6% generated by the Tech industry.

See our latest analysis for AKIBA HoldingsLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how AKIBA HoldingsLtd has performed in the past in other metrics, you can view this free graph of AKIBA HoldingsLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of AKIBA HoldingsLtd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 28% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a related note, AKIBA HoldingsLtd has decreased its current liabilities to 50% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE. Keep in mind 50% is still pretty high, so those risks are still somewhat prevalent.

Our Take On AKIBA HoldingsLtd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that AKIBA HoldingsLtd is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 35% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing: We've identified 5 warning signs with AKIBA HoldingsLtd (at least 2 which are a bit concerning) , and understanding them would certainly be useful.

While AKIBA HoldingsLtd isn't earning the highest return, check out this free list of companies that are 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.