A Look Into Kobe Bussan's (TSE:3038) Impressive Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. That's why when we briefly looked at Kobe Bussan's (TSE:3038) ROCE trend, we were very happy with what we saw.

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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. The formula for this calculation on Kobe Bussan is:

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

0.20 = JP¥40b ÷ (JP¥260b - JP¥59b) (Based on the trailing twelve months to October 2025).

Thus, Kobe Bussan has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 9.4% earned by companies in a similar industry.

See our latest analysis for Kobe Bussan

Above you can see how the current ROCE for Kobe Bussan compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Kobe Bussan for free.

The Trend Of ROCE

We'd be pretty happy with returns on capital like Kobe Bussan. The company has employed 98% more capital in the last five years, and the returns on that capital have remained stable at 20%. Now considering ROCE is an attractive 20%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Kobe Bussan can keep this up, we'd be very optimistic about its future.

Our Take On Kobe Bussan's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. However, over the last five years, the stock has only delivered a 27% return to shareholders who held over that period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

While Kobe Bussan looks impressive, no company is worth an infinite price. The intrinsic value infographic for 3038 helps visualize whether it is currently trading for a fair price.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.