Riken Keiki's (TSE:7734) Returns Have Hit A Wall

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Riken Keiki's (TSE:7734) trend of ROCE, we liked what we saw.

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

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 Riken Keiki is:

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

0.13 = JP¥11b ÷ (JP¥94b - JP¥11b) (Based on the trailing twelve months to June 2025).

So, Riken Keiki has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 9.1% it's much better.

View our latest analysis for Riken Keiki

In the above chart we have measured Riken Keiki's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Riken Keiki .

What Does the ROCE Trend For Riken Keiki Tell Us?

While the returns on capital are good, they haven't moved much. The company has employed 59% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

To sum it up, Riken Keiki has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 147% 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.

If you're still interested in Riken Keiki it's worth checking out our FREE intrinsic value approximation for 7734 to see if it's trading at an attractive price in other respects.

While Riken Keiki 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.