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Micronics Japan (TSE:6871) Knows How To Allocate Capital Effectively

Simply Wall St · 07/31 22:57

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So when we looked at the ROCE trend of Micronics Japan (TSE:6871) we really liked what we saw.

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Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Micronics Japan:

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

0.23 = JP¥13b ÷ (JP¥81b - JP¥25b) (Based on the trailing twelve months to March 2025).

Thus, Micronics Japan has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

See our latest analysis for Micronics Japan

roce
TSE:6871 Return on Capital Employed July 31st 2025

In the above chart we have measured Micronics Japan'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 Micronics Japan for free.

What Can We Tell From Micronics Japan's ROCE Trend?

Micronics Japan is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 23%. The amount of capital employed has increased too, by 117%. So we're very much inspired by what we're seeing at Micronics Japan thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Micronics Japan is reaping the rewards from prior investments and is growing its capital base. And a remarkable 507% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, Micronics Japan does come with some risks, and we've found 1 warning sign that you should be aware of.

Micronics Japan is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.