The Return Trends At Toray Industries (TSE:3402) Look Promising
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Toray Industries (TSE:3402) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Toray Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.05 = JP¥126b ÷ (JP¥3.4t - JP¥822b) (Based on the trailing twelve months to September 2025).
Thus, Toray Industries has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.1%.
See our latest analysis for Toray Industries
Above you can see how the current ROCE for Toray Industries 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 Toray Industries .
How Are Returns Trending?
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.0%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 24%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line On Toray Industries' ROCE
All in all, it's terrific to see that Toray Industries is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 80% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Toray Industries can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing Toray Industries, we've discovered 1 warning sign that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.