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Tokyo Ohka Kogyo Co., Ltd.'s (TSE:4186) Stock Is Going Strong: Is the Market Following Fundamentals?

Simply Wall St · 08/25 22:37

Tokyo Ohka Kogyo's (TSE:4186) stock is up by a considerable 33% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Tokyo Ohka Kogyo's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How To Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Tokyo Ohka Kogyo is:

15% = JP¥32b ÷ JP¥219b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. So, this means that for every ¥1 of its shareholder's investments, the company generates a profit of ¥0.15.

Check out our latest analysis for Tokyo Ohka Kogyo

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Tokyo Ohka Kogyo's Earnings Growth And 15% ROE

To begin with, Tokyo Ohka Kogyo seems to have a respectable ROE. On comparing with the average industry ROE of 6.8% the company's ROE looks pretty remarkable. This certainly adds some context to Tokyo Ohka Kogyo's decent 16% net income growth seen over the past five years.

We then compared Tokyo Ohka Kogyo's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 7.5% in the same 5-year period.

past-earnings-growth
TSE:4186 Past Earnings Growth August 25th 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for 4186? You can find out in our latest intrinsic value infographic research report.

Is Tokyo Ohka Kogyo Efficiently Re-investing Its Profits?

Tokyo Ohka Kogyo has a healthy combination of a moderate three-year median payout ratio of 34% (or a retention ratio of 66%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.

Besides, Tokyo Ohka Kogyo has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

On the whole, we feel that Tokyo Ohka Kogyo's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.