The Return Trends At Tobu Railway (TSE:9001) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Tobu Railway's (TSE:9001) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Tobu Railway is:

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

0.054 = JP¥72b ÷ (JP¥1.8t - JP¥454b) (Based on the trailing twelve months to September 2025).

Thus, Tobu Railway has an ROCE of 5.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.2%.

View our latest analysis for Tobu Railway

Above you can see how the current ROCE for Tobu Railway 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 Tobu Railway .

What Can We Tell From Tobu Railway's ROCE Trend?

Tobu Railway is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 665% whilst employing roughly the same amount of capital. 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.

The Bottom Line On Tobu Railway's ROCE

In summary, we're delighted to see that Tobu Railway has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

Tobu Railway does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those make us uncomfortable...

While Tobu Railway 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.