The Return Trends At Komatsu (TSE:6301) Look Promising

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. 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 Komatsu's (TSE:6301) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Komatsu, this is the formula:

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

0.15 = JP¥631b ÷ (JP¥5.9t - JP¥1.6t) (Based on the trailing twelve months to September 2025).

So, Komatsu has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Machinery industry.

See our latest analysis for Komatsu

In the above chart we have measured Komatsu'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 Komatsu .

What Can We Tell From Komatsu's ROCE Trend?

Komatsu is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 15%. The amount of capital employed has increased too, by 63%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

In summary, it's great to see that Komatsu can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Komatsu can keep these trends up, it could have a bright future ahead.

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While Komatsu may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.