There's Been No Shortage Of Growth Recently For Kyushu Railway's (TSE:9142) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Kyushu Railway's (TSE:9142) returns on capital, so let's have a look.

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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. To calculate this metric for Kyushu Railway, this is the formula:

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

0.071 = JP¥70b ÷ (JP¥1.2t - JP¥188b) (Based on the trailing twelve months to September 2025).

So, Kyushu Railway has an ROCE of 7.1%. In absolute terms, that's a low return, but it's much better than the Transportation industry average of 5.2%.

See our latest analysis for Kyushu Railway

In the above chart we have measured Kyushu Railway's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Kyushu Railway for free.

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

The fact that Kyushu Railway is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 7.1% on its capital. Not only that, but the company is utilizing 31% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Key Takeaway

Overall, Kyushu Railway gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Kyushu Railway does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Kyushu 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.